1 Introduction
The entry and growth of new firms, and the decline and exit of existing firms, are important contributors to aggregate productivity growth in OECD countries (Scarpetta, Hemmings, Tressel, and Woo, 2002). As well as contributing to productivity directly, firm entry and exit also increase competition, providing an incentive for existing firms to engage in activities to raise their own productivity. For these reasons, high levels of business dynamism are often thought to be positive for economic performance, and institutions or regulations that restrict firm creation and adjustment are seen as potential impediments to economic growth (Brandt, 2004).
The relationship between firm dynamics and productivity growth in New Zealand has not yet been fully investigated. However, several studies have now looked at evidence on New Zealand’s business demographics and levels of business dynamism over time. These studies have highlighted some apparent differences between New Zealand and other OECD countries in terms of indicators of firm dynamics and business demography, including small firm size, high rates of employment turnover (job creation and destruction), high rates of firm turnover (entry and exit), and low rates of firm growth.
This paper extends on previous New Zealand research by carrying out an extensive comparative analysis of firm dynamics in New Zealand and other OECD countries. This analysis attempts to take measurement differences into account (as far as is possible given data limitations) by obtaining new business demography statistics for New Zealand that use similar criteria to those applied in recent OECD studies (Bartelsman et al, 2003; Brandt 2004). The findings suggest that once measurement differences are taken into account, New Zealand’s firm dynamics and demographics are more similar to other OECD countries than has previously been thought.
As well as addressing measurement issues, the current paper also looks at a broader range of firm dynamics variables than has been covered in previous studies. The variables covered in the analysis include overall firm size, size of entering and exiting firms relative to incumbent firms, firm and employment turnover rates, firm survival rates, and firm growth rates.
The remainder of the paper will begin by discussing the previous studies of business dynamics in New Zealand and the measurement issues they raise, and then go on to outline the key characteristics of New Zealand’s business demography data and of the overseas data that are available for comparison. The key measurement issues to be considered in making international comparisons of firm dynamics will then be set out, and the main differences in the different databases highlighted. The paper will then report on the results of comparative analysis of a range of firm dynamics variables, controlling for measurement differences to the extent that this is possible given data limitations.
