2017/06 | LEM Working Paper Series | |
Growth and survival of the `fitter'? Evidence from US new-born firms |
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Giovanni Dosi, Emanuele Pugliese and Pietro Santoleri |
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Keywords | ||
market selection, replicator dynamics, new firm growth, survival, Shapley decomposition
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JEL Classifications | ||
L11, L25, M13
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Abstract | ||
We examine market selection mechanisms and their strength for a
representative cohort of US new independent firms. In particular, we
explore whether and how effectively markets reward newly-born firms
according to their `fitness' in terms of both labour productivity and
profitability. Our analysis yields puzzling results in contrast with
canonical industry dynamics models. First, we find that selection on
differential growth is mainly related to productivity while profitability
plays a negligible role. Second, in contrast with the growth of the
fitter principle, selection appears to be driven by changes in firms'
relative productivity. Third, we explore how new firms' relative fitness
affects their growth performance in different sectors. Our results reveal
that market selection operates quite differently across them with higher
incidence for new-born firms in services, low-tech and less concentrated
sectors. Fourth, concerning selection via exit, our results support
the survival of the fitter principle with respect to productivity, while
relative profitability does not seem to exert any significant effect on
survival probabilities. However, the contribution of firm relative
`fitness' to the total firm exit rates variation appears to be modest.
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