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Entry and exit in severe recessions: lessons from the 2008–2013 Portuguese economic crisis

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Abstract

Under cleansing, productivity-enhancing reallocation is expected to be accelerated in recessions. In this paper we contribute to the analysis of one component of the national systems of entrepreneurship (namely capital market frictions) by showing that in the extreme scenario of deep recession efficiency in resource reallocation can actually be reduced. Using data from the pronounced Portuguese economic crisis, we do find a spike in firm exit in 2008–2012 vis-à-vis the 2004–2007 pre-crisis period, and a substantial increase in job destruction as well. But we did not find any strong evidence that job reallocation is countercyclical, while a non-negligible fraction of high-productivity firms actually shut down. In turn, our selected proxies for strictness in credit markets reveal that in deep recessions they are seemingly associated with increased firm exit and lower employment creation. Taken in round, our results show that credit market stringency in conjunction with an unfavourable economic cycle is likely to generate a long-lasting destructive process.

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Notes

  1. Following Hallward-Driemeier and Rijkers (2013) and Carneiro et al. (2014), we use the same set of explanatory variables as in the survival model above.

  2. The random effects model is rejected in favour of the fixed-effects model by the Hausman test at the 1 % significance level.

  3. Estimation was performed using the opreg command of Stata SE 11.2, developed by Yasar et al. (2008).

  4. There are alternative ways for the computation of factor elasticities (Beveren 2012). However, they all tend to generate similar TFP results, even if they produce somewhat different elasticities (Syverson 2011).

  5. We follow the European Commission enterprise size classification, where micro firms are those with <10 employees, small firms with 10–49 employees, medium firms with 50–249, and large firms with 250 or more employees.

  6. The model was implemented using the stcox command of Stata SE 11.2, with the efron and shared options.

  7. We used the xtreg command of Stata SE 11.2, with the fixed-effects option. The null hypothesis that the preferred model is random effects is rejected in favour of fixed effects, and the null that all year dummies are jointly equal to zero is also rejected, as well the null in favour of homoscedasticity.

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Authors and Affiliations

  1. GEMF and Faculty of Economics, University of Coimbra, Av. Dr. Dias da Silva, 165, 3004-512, Coimbra, Portugal

    Carlos Carreira

  2. GEMF and Faculty of Economics, University of Coimbra, Coimbra, Portugal

    Paulino Teixeira

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  1. Carlos Carreira
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  2. Paulino Teixeira
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Correspondence to Carlos Carreira.

Appendix

Appendix

See Tables 11, 12, 13, 14, 15 and 16.

Table 16 Correlation across covariates
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Carreira, C., Teixeira, P. Entry and exit in severe recessions: lessons from the 2008–2013 Portuguese economic crisis. Small Bus Econ 46, 591–617 (2016). https://doi.org/10.1007/s11187-016-9703-3

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