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Determinants of Survival of Newly Created SMEs in the Brazilian Manufacturing Industry: an Econometric Study

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The potential role of smaller firms in employment creation is the most noticeable motivation for the recurring interest on that segment which has prompted the investigation of the factors that affect firm survival for that size class. The empirical literature, focused on developed countries, and has triggered controversies associated with size measurement and estimation issues [see e.g. Davis et al. (1996) and Davidsson et al.(1998)]. Evidence seems to indicate, as expected, that the net job creation effect is likely to be stronger in service industries. Nevertheless, more recent studies provide appealing evidence on particularly high net job creation by small firms also in the context of the manufacturing industry as suggested by Hijzen…show more content…
Exceptions include panel data studies like those of Esteve-Pérez et al. (2004, 2008). The latter focuses on the export-related survival of SMEs in Spain and explicitly controls for unobserved heterogeneity. In fact, the econometric approach closely relates to the one considered in this paper, but a gap in studies for developing countries still prevails. The remainder of the paper is organized as follows. In section 2.1 we introduce a brief review of the relevant literature. Section 2.2 will deal with methodological aspects of our exercise including the relevant econometric issues involved. Section 3 contains the promised application to Brazilian data, and section 4 will offer final comments. 2. Firm survival: theoretical aspects 2.1 – A brief review of the literature Industrial dynamics seems to be characterized by fairly robust stylized facts that hold for different countries. [see Geroski (1995) for a representative survey on entry patterns]. Cabral (2007) highlights stylized facts on industrial dynamics in the context of small firms and thus is more tailored to motivate the present study. A first salient pattern refers to the existence of simultaneous entry and exit in each industry indicating that idiosyncratic firm-specific shocks are likely to play an important role beyond more aggregated (for example sectoral) variables as indicated in the related
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