Economic Dynamism

Economic Dynamism

Örebro Studies in Economics 25

NIKLAS ELERT

Economic Dynamism

© Niklas Elert, 2014

Title: Economic Dynamism – Essays on firm entry and firm growth Publisher: Örebro University 2014

www.oru.se/publikationer-avhandlingar

Print: Örebro University, Repro 05/2014

ISSN1651-8896

ISBN 978-91-7529-030-0

Abstract

Niklas Elert (2014): Economic Dynamism – Essays on firm entry and firm growth. Örebro Studies in Economics.

The topic of this thesis is economic dynamism. The five articles contribute to the literature on firm entry and firm growth. Studies are based on a dataset covering all Swedish limited liability firms between 1997 and 2010.

The first article investigates conditions for firm entry in Sweden, distin- guishing regular entrants from entrants that survive for at least two years, modelling the firm entry decision using count data models. While high income and a well-educated population had a positive effect, the effect was more im- portant for surviving entrants. The second article uses a similar method, but focuses on wholesale industries and distinguishes between regular entry and in-migration of firms, i.e. when an incumbent firm relocates its operations.

Access to a university, many educated workers and low local taxes had positive effects. Better access to infrastructure had a strong positive effect on entrants, but it was smaller for in-migrating firms. The third article investigates if the industry context matters for whether Gibrat’s law holds, i.e. whether firm growth is independent of firm size. The law is found more likely to be rejected in industries with a high minimum efficient scale and a large number of firms located in metropolitan areas, but more likely to hold in industries with high market concentration and more group ownership. The fourth and fifth article contribute to the high-growth firms (HGFs) literature. In the fourth article it is examined whether the way HGFs are defined matters for the policy implica- tions. It is found that the economic contributions of HGFs differ significantly depending on definition. Young firms are however more likely to be HGFs irrespective of definition. The fifth article considers the frequent argument that policymakers should target high-tech firms, i.e., firms with high R&D inten- sity, because such firms are thought more likely to become HGFs. We examine this assumption by studying the industry distribution of HGFs. Results indicate that industries with high R&D intensity, ceteris paribus, can be expected to have a lower share of HGFs than can industries with lower R&D intensity. By contrast, we find that HGFs are overrepresented in service industries with a high share of human capital.

Keywords: Entrepreneurship, Innovation, Firm entry, Regional economics, Gibrat's Law, Firm growth, Firm size, Gazelles, High-growth firms, High- impact firms.

Niklas Elert, Department of economics

Örebro University, SE-701 82 Örebro, Sweden, niklas.elert@ratio.se

Acknowledgements

According to fantasy author Neil Gaiman, a novel can best be defined as “a long piece of prose with something wrong with it”. I am quite certain that I have written a thesis that also meets that criterion. I want to take the opportunity to thank the people who made the errors fewer than they otherwise would have been, and all those who in one way or another made this thesis possible.

First of all, I would like to express my deep gratitude to The Ratio Institute, Dalarna University and Örebro University for giving me the opportunity to pur- sue a post-graduate education. Notably I am indebted to Nils Karlson and The Ratio Institute, my workplace. Ratio has been an engaging and inspiring envi- ronment and has meant a lot to me and to this dissertation. I am furthermore much indebted to my main supervisor Sven-Olov Daunfeldt for his invaluable advice, guidance and encouragement. I also want to express my gratitude to my co-supervisors Dan Johansson and Niklas Rudholm, whose many insightful comments have greatly improved this dissertation.

I would especially like to thank my fellow Ph. D student (now doctor) Daniel Halvarsson, for the time and effort he spent helping me throughout this disser- tation, but most of all for his good friendship. I also want to express my grati- tude to my other colleagues at Ratio, whose help, friendship and encouragement over the years have been very valuable. In particular I want to thank Hannes Andréasson, Karl Axelsson, Niclas Berggren, Anders Bornhäll, Ann-Kari Edenius, Elina Fergin, Anne-Sophie Larsson, Daniel Klein, Hans Pitlik, Chris- tian Sandström, Patrik Tingvall, Karl Wennberg, and Hans Westerberg.

Furthermore, I would like to thank Professor Martin Andersson for his many valuable comments during my licentiate seminar, Professor Johan Klaesson who discussed my papers at the pre-seminar, and all participants at seminars whose comments and suggestions have been very useful. I also owe a great debt to Lars Hultkrantz, Daniela Andrén and many others at Örebro University for their great help and encouragement. During the fall of 2013, I got the opportunity to study at George Mason University in Washington DC, for which I gratefully recognize financial support from the Ragnar Söderberg Foundation.

Finally I want to express my great appreciation to my friends and family for their never-ending support. Words cannot express how grateful I am to my fi- ancée Josefin for her patience and encouragement. Thank you for believing in me.

Of course, all errors are my own.

Niklas Elert

The Ratio Institute, Stockholm, May, 2014.

Table of Contents

Introductory Chapter

Article 1 – What determines entry? Evidence from Sweden

Article 2 – Start-ups and firm in-migration: evidence from the Swedish wholesale industry

Article 3 – When is Gibrat’s law a law?

Article 4 – The Economic Contribution of High-growth Firms: Do policy Implications Depend on the Choice of Growth Indicator?

Article 5 – Are High-Growth Firms Overrepresented in High- tech Industries?

Introductory Chapter

1LNODV(OHUW

1 Introduction

7KH WRSLF RI WKLV WKHVLV LV HFRQRPLF G\QDPLVP WKDW SURFHVV RI VWUXFWXUDO

WUDQVIRUPDWLRQRUFUHDWLYHGHVWUXFWLRQWKDWSUHFHGHVDQGDFFRPSDQLHVLQQRYDWLRQ

NQRZOHGJH HYROXWLRQ DQG HFRQRPLF JURZWK 6SHFLILFDOO\ LW DGGUHVVHV WZR

LPSRUWDQWIDFHWVRIWKLVG\QDPLVPQDPHO\ILUPHQWU\DQGILUPJURZWK7KHILYH

DUWLFOHVPRVWQRWDEO\FRQWULEXWHWRWKHOLWHUDWXUHZLWKUHVSHFWWRWKHLUHPSLULFDO

ILQGLQJVDQGSXEOLFSROLF\LPSOLFDWLRQV$OORIWKHVWXGLHVDUHEDVHGRQDGDWDVHW

FRYHULQJDOO6ZHGLVKOLPLWHGOLDELOLW\ILUPVEHWZHHQDQG

,GHQWLI\LQJDFRPPRQOLQHRIDUJXPHQWUXQQLQJWKURXJKILYHDUWLFOHVZULWWHQRYHU

VHYHUDO\HDUVFDQEHDFKDOOHQJH+RSHIXOO\WKLVLQWURGXFWRU\FKDSWHUZLOOPDNH

WKHUHPDLQGHURIWKLVWKHVLVUHDGDVSUHFLVHO\WKDW±DVDWKHVLVUDWKHUWKDQILYH

VHSDUDWH DUWLFOHV ± E\ SURYLGLQJ D IUDPHZRUN WR LQWHUSUHW WKH LQGLYLGXDO

FRQWULEXWLRQV:KLOHDOORIWKHDUWLFOHVGLVFXVVUHOHYDQWWKHRUHWLFDOFRQFHSWVWKH\

DUHSULPDULO\HPSLULFDOO\RULHQWHG7KHQH[WVHFWLRQRIWKHLQWURGXFWRU\FKDSWHU

ZLOOWKHUHIRUHVHUYHDVDPRUHH[WHQVLYHWKHRUHWLFDODQGHPSLULFDOEDFNJURXQG

FRQFHUQLQJHFRQRPLFG\QDPLVPHQWUHSUHQHXUVKLSILUPHQWU\DQGILUPJURZWK

,W H[SDQGV RQ VRPH RI WKH FRQFHSWV WKDW DUH DOOXGHG WR LQ WKH DUWLFOHV DQG

LQWURGXFHV DGGLWLRQDO FRQFHSWV WKDW , GHHP UHOHYDQW WR EHWWHU DSSUHFLDWH WKH

FRQWHQWRIWKHWKHVLV,WEHJLQVE\GLVFXVVLQJWKHLPSRUWDQFHRIHQWUHSUHQHXUVKLS

DQGLQQRYDWLRQWRHFRQRPLFJURZWKDQGWKHQSURFHHGVWRGHPRQVWUDWHKRZDQG

ZK\HFRQRPLFG\QDPLVPILUPHQWU\DQGILUPJURZWKDUHLPSRUWDQWIRUUREXVW

HFRQRPLFGHYHORSPHQW,QDGGLWLRQLWHPSKDVL]HVWKHUROHSOD\HGE\HFRQRPLF

LQVWLWXWLRQVDQGSXEOLFSROLF\LQWKHFUHDWLRQRIDG\QDPLFHFRQRP\

6HFWLRQGLVFXVVHVPRUHVSHFLILFTXHVWLRQVUHODWHGWRWKHGDWDDQGPHWKRGRORJ\

HPSOR\HG LQ WKH ILYH DUWLFOHV ZKLOH HDFK RI WKHP LV SUHVHQWHG H[WHQVLYHO\ LQ

VHFWLRQ7KH\ZLOOEHEULHIO\GHVFULEHGEHORZ

7KHILUVWWZRDUWLFOHVFRQWULEXWHWRWKHOLWHUDWXUHRQILUPHQWU\,QD6FKXPSHWHULDQ

YLHZQHZILUPVDUHYHKLFOHVRIFUHDWLYHGHVWUXFWLRQZKRFKDOOHQJHLQFXPEHQW

ILUPV 7KH ILUVW DUWLFOH What Determines Entry? Evidence from Sweden H[DPLQHV WKH GHWHUPLQDQWV RI HQWU\ LQ 6ZHGLVK LQGXVWULHV DQG PXQLFLSDOLWLHV

ZKLOHPDNLQJDGLVWLQFWLRQEHWZHHQUHJXODUHQWUDQWVDQGWKRVHWKDWVXUYLYHIRUDW

OHDVWWZR\HDUV7KHVHFRQGDUWLFOHStart-ups and In-migration: Evidence from the Swedish Wholesale Industry FRDXWKRUHG ZLWK 6YHQ2ORY 'DXQIHOGW DQG

1LNODV 5XGKROP SRVHV VLPLODU TXHVWLRQV EXW GLVWLQJXLVKHV UHJXODU ILUP HQWU\

IURPLQPLJUDWLRQLHZKHQDQLQFXPEHQWILUPWUDQVIHUVLWRSHUDWLRQVIURPRQH

VHFWRUPXQLFLSDOLW\WRDQRWKHU

+RZHYHUWKHUHLVPXFKHYLGHQFHWRVXJJHVWWKDWPRVWHQWUDQWVDUHHVVHQWLDOO\

IDLOXUHV7KLVEULQJVTXHVWLRQVFRQFHUQLQJILUPJURZWKWRWKHIRUHZKLFKVHUYHV

DVWKHRYHUDUFKLQJVXEMHFWRIWKHUHPDLQLQJWKUHHFKDSWHUVRIWKLVWKHVLV7KHWKLUG

DUWLFOHWhen is Gibrat’s Law a Law?FRDXWKRUHGZLWK6YHQ2ORY'DXQIHOGW H[DPLQHVWKHVRFDOOHG*LEUDW¶V/DZRISURSRUWLRQDWHHIIHFWZKLFKVWLSXODWHVWKDW

ILUP JURZWK LV VWDWLVWLFDOO\ LQGHSHQGHQW RI ILUP VL]H 7KH DUWLFOH H[WHQGV WKH

SUHYLRXVOLWHUDWXUHE\DVVHVVLQJWKHLQGXVWU\VSHFLILFFRQGLWLRQVXQGHUZKLFKWKH

ODZKROGVRUGRHVQRW

,I *LEUDW¶V /DZ KROGV WKH ILUP JURZWK GLVWULEXWLRQ VKRXOG EH *DXVVLDQ <HW

HYLGHQFHVXJJHVWVWKDWWKLVLVQRWWKHFDVHDQGWKHGLVWULEXWLRQLVLQIDFW/DSODFLDQ

VKDSHGZLWKWKLFNHUWDLOV1RWDEO\VXEVWDQWLDOLQWHUHVWKDVEHHQGHYRWHGWRWKH

ULJKWWDLORIWKHGLVWULEXWLRQZKHUHWKHIDVWJURZLQJILUPVUHVLGHDIHZUDSLGO\

JURZLQJILUPVWKDWDUHDVVXPHGWRDFFRXQWIRUWKHPDMRULW\RIQHWMREFUHDWLRQ

6XFKILUPVDUHFDOOHG+LJK*URZWK)LUPV+*)VDQGDUHWKHIRFXVRIWKHIRXUWK

DQGILIWKDUWLFOHVRIWKLVWKHVLV7KHIRXUWKDUWLFOHThe Economic Contribution of High-growth firms: Do Policy Implications depend on the Choice of Growth Indicator?FRDXWKRUHGZLWK6YHQ2ORY'DXQIHOGWDQG'DQ-RKDQVVRQH[DPLQHV

WKHH[WHQWWRZKLFKWKHZD\+*)VDUHGHILQHGDQGPHDVXUHGDIIHFWVWKHSROLF\

LPSOLFDWLRQVWKDWFDQEHGUDZQIURPVWXG\LQJWKHP7KHILIWKDUWLFOHAre High- Growth Firms Overrepresented in High-tech Industries?FRDXWKRUHGZLWK6YHQ

2ORY'DXQIHOGWDQG'DQ-RKDQVVRQDVNVZKHWKHU+*)VDUHPRUHSUHYDOHQWLQ

KLJKWHFKLQGXVWULHVLHLQGXVWULHVFKDUDFWHUL]HGE\DKLJK5 'LQWHQVLW\DQG

KHQFH ZKHWKHU SXEOLF SROLFLHV WKDW WDUJHW WKHVH ILUPV E\ IRFXVLQJ RQ VXFK

LQGXVWULHVUHVWRQDVRXQGIRXQGDWLRQ

6HFWLRQLVDQDWWHPSWWRVXPPDUL]HWKHOHVVRQVRIWKLVWKHVLVGHPRQVWUDWLQJ

KRZWKHILQGLQJVUHODWHWRRQHDQRWKHUWRWKHRU\DQGWRSULRUHPSLULFDOHYLGHQFH

,QWKLVVHFWLRQ,DOVRGUDZVRPHFRQFOXVLRQVUHJDUGLQJSROLF\LPSOLFDWLRQVDQG

WKHYHQXHVIXWXUHUHVHDUFKRQHFRQRPLFG\QDPLVPVKRXOGH[SORUH

 

2 Background 2.1 Entrepreneurship

7KHDYHUDJHKXPDQEHLQJZKROLYHG\HDUVDJRVXEVLVWHGRQWKHHTXLYDOHQW

RIOHVVWKDQGROODUVSHUGD\SRWHQWLDOO\GROODUVLQWKHUHODWLYHO\ZHDOWK\SDUWV

RIWKHJOREH6LQFHWKHQWKHJOREDOSRSXODWLRQKDVLQFUHDVHGVHYHQIROGZKLOH

DYHUDJHLQFRPHLVHOHYHQWLPHVKLJKHUDQGPRUHWKDQWLPHVKLJKHULQDFRXQWU\

VXFK DV 6ZHGHQ 0DGGLVRQ ^$YHUDJH OLIH H[SHFWDQF\ DW ELUWK KDV

LQFUHDVHGIURPWR\HDUV:+2

7KLV IXQGDPHQWDO WUDQVIRUPDWLRQ RI KXPDQ OLYLQJ VWDQGDUGV ZDV GULYHQ E\

HFRQRPLFJURZWK:KDWFDXVHVJURZWK",QWKHZRUGVRI5REHUW/XFDV

³WKHFRQVHTXHQFHVIRUKXPDQZHOIDUHLQYROYHGLQTXHVWLRQVOLNHWKHVHDUHVLPSO\

VWDJJHULQJRQFHRQHVWDUWVWRWKLQNDERXWWKHPLWLVKDUGWRWKLQNDERXWDQ\WKLQJ

HOVH´:KLOHWKHDQVZHUVUHPDLQFRQWHVWHG0F&ORVNH\WKHYLHZWKDWD

FRXQWU\¶VORQJUXQHFRQRPLFJURZWKGHSHQGVRQLWVDELOLW\WRH[SORLWLQQRYDWLRQV

KDVJDLQHGPXFKJURXQGLQUHFHQWGHFDGHV&RKHQ

7KH$XVWULDQHFRQRPLVW-RVHSK6FKXPSHWHULGHQWLILHGLQQRYDWLRQDVWKHFULWLFDO

GLPHQVLRQ RI HFRQRPLF FKDQJH ,Q 6FKXPSHWHULDQ WHUPV LQQRYDWLRQ LV WKH

FUHDWLRQRIQHZFRPELQDWLRQVJHQHUDOO\RIROGDQGQHZNQRZOHGJH,QQRYDWLRQ

KHQFHSURPRWHVWKHHYROXWLRQRINQRZOHGJH0HUWRQ%UDXQHUKMHOP

-RKDQVVRQ  7KH IXQFWLRQ RI IRUPLQJ WKHVH FRPELQDWLRQV LV W\SLFDOO\

DVFULEHGWRWKHHQWUHSUHQHXUZKR6FKXPSHWHUDQGPDQ\RWKHUVVDZDVWKHprimus motorIRUHFRQRPLFJURZWK+HQUHNVRQDQG6WHQNXOD

'HVSLWHWKHDSSDUHQWLPSRUWDQFHRIHQWUHSUHQHXUVKLSIRUNQRZOHGJHHYROXWLRQ

DQGHFRQRPLFJURZWKWKHFRQFHSWKDVW\SLFDOO\EHHQLJQRUHGRUPXFKVLPSOLILHG

LQ PDLQVWUHDP HFRQRPLFV %DXPRO  .LUFKRII  .LU]QHU 

-RKDQVVRQ+HQUHNVRQ*UDQWHGWKHUHKDYHEHHQDWWHPSWVWRLQFOXGH

HQWUHSUHQHXUVKLSLQJURZWKPRGHOV6HJHUVWURPHWDO$JKLRQDQG+RZLWW

 +HOSPDQ $FHPRJOX HW DO $FV HW DO  $FV HW DO 

%UDXQHUKMHOPHWDODQGDQXPEHURIUHFHQWHPSLULFDOVWXGLHVVXJJHVWWKDW

HQWUHSUHQHXUVKLS LV LQVWUXPHQWDO LQ GHYHORSLQJ H[SORLWLQJ DQG GLIIXVLQJ

NQRZOHGJHZKLFKLQWXUQSRVLWLYHO\LQIOXHQFHVHFRQRPLFJURZWKDQGMREFUHDWLRQ

7KXULN&DUHHDQG7KXULN:HQQHNHUVDQG7KXULN$XGUHWVFK

DQG7KXULN$XGUHWVFKHWDO&DUUHHHWDO)ULWVFK6WDPHW

DO$FVHWDO6DOJDGR%DQGD%UDXQHUKMHOPHWDO



%HWZHHQDQGJOREDO*'3SHUFDSLWDURVHIURPWRGROODUVSHUSHUVRQSHU

\HDU,QWKHFDVHRI6ZHGHQLWLQFUHDVHGIURPWRGROODUV

6XWWHU.RHOOLQJHUDQG7KXULNVHH9DQ3UDDJDQG9HUVORWDQG

9LYDUHOOLIRUFRPSUHKHQVLYHVXUYH\V

7KHVHVWXGLHVDOOIDFHGLIILFXOWLHVLQGHILQLQJDQGPHDVXULQJHQWUHSUHQHXUVKLSLQ

D PDQQHU WKDW FDSWXUHV WKH ZLGHUDQJLQJ DQG FRPSOH[ IXQFWLRQV WKDW

HQWUHSUHQHXUVDUHVDLGWRSURYLGHRXWVLGHRIPDLQVWUHDPHFRQRPLFV+HQUHNVRQ

FI*ODQFH\DQG0F4XDLG6ZHGEHUJ7KLVLVKDUGO\VXUSULVLQJ

LQPDQ\ZD\VWKHHQWUHSUHQHXUHOXGHVDQDO\WLFDOWUDFWDELOLW\DQGIRUPDOL]DWLRQ

DQG LW ZDV LQ FRQQHFWLRQ ZLWK WKH JURZLQJ GRPLQDQFH RI WKH PDWKHPDWLFDO

DSSURDFKWKDWHQWUHSUHQHXUVKLSZDVILUVWUHPRYHGIURPPDLQVWUHDPHFRQRPLFV

+HEHUWDQG/LQN%DUUHWR7KRVHZKRWDNHQRWHRIWKLVGLVDSSHDUDQFH

JHQHUDOO\UHJDUGLWDVGHHSO\SUREOHPDWLFVHHHJ6FKXPSHWHU%DXPRO

&DVVRQ%DUUHWR+HEHUWDQG/LQN.LU]QHU

%ODXJ0DFKRYHF(OLDVVRQ,QWKHZRUGVRI%XFKDQDQ



,QFUHDVLQJO\,KDYHFRPHWRWKHYLHZWKDWWKHUROHRIHQWUHSUHQHXUVKLSKDV

EHHQ WKH PRVW QHJOHFWHG DUHD RI HFRQRPLF LQTXLU\ ZLWK VLJQLILFDQW

QRUPDWLYH LPSOLFDWLRQV IRU WKH JHQHUDO XQGHUVWDQGLQJ RI KRZ WKH ZKROH

HFRQRP\ZRUNV

(QWUHSUHQHXUVKLS LV QR ORQJHU DV QHJOHFWHG DV LW ZDV ZKHQ WKRVH ZRUGV ZHUH

ZULWWHQ<HWPXFKUHPDLQVWREHGRQHEHIRUHLWZLOOEHVXFFHVVIXOO\LQFRUSRUDWHG

LQWR PDLQVWUHDP HFRQRPLFV LI LW HYHU ZLOO $W DQ RYHUDUFKLQJ OHYHO WKH

LPSRUWDQFHRIHQWUHSUHQHXUVKLSDQGWKHHYROXWLRQRINQRZOHGJHPRWLYDWHVWKLV

WKHVLVRQHFRQRPLFG\QDPLVPZKLFKVWXGLHVVRPHRIWKHIDFHWVRIWKLVFRQFHSW

,Q WKH IROORZLQJ VHFWLRQV WKH UHODWLRQVKLSV DPRQJ HQWUHSUHQHXUVKLS HQWU\

JURZWKDQGHFRQRPLFG\QDPLVPZLOOEHGLVFXVVHGLQJUHDWHUGHWDLO

2.1 Entry, Growth, and Entrepreneurship

7KH IDFWV DUH EUHDWKWDNLQJ ,Q DQ\ JLYHQ TXDUWHU DERXW RQH LQ WZHQW\

HVWDEOLVKPHQWV RSHQV RU JRHV RXW RI EXVLQHVV DQG RQH LQ WKLUWHHQ MREV

EHJLQVRUHQGV%URZQHWDO

$VWKHDERYHTXRWHFRQFHUQLQJWKH86HFRQRP\VXJJHVWVDPDUNHWHFRQRP\LV

QRW VWDWLF EXW G\QDPLF 7KH VXUIDFH RI WKH ODNH PD\ EH VPRRWK EXW VWURQJ

XQGHUFXUUHQWVUXQEHQHDWKLW:KLOHWKHWRWDOQXPEHURIILUPVLQRSHUDWLRQPD\

YDU\ RQO\ VOLJKWO\ RYHU WLPH WKH QXPEHUV RI H[LWV DQG HQWULHV LQ D PDUNHW

HFRQRP\LQDJLYHQPRQWKRU\HDUDUHVXEVWDQWLDODVPDQ\QHZILUPVFRQWLQXDOO\

UHSODFHROGHURQHVHJ6WRUH\'DYLGVVRQHWDO7KLVFKXUQLQJLV

LQKHUHQWWRWKHPDUNHWSURFHVV$OIUHG0DUVKDOOLY[LLLOLNHQHGWKH

PDUNHWWRDIRUHVWZKHUHILUPV³VWUXJJOHXSZDUGVWKURXJKWKHEHQXPELQJVKDGH

RIWKHLUROGHUULYDOV´$VWKHILUPVJURZROGDQGEHFRPHODUJHWKH\HYHQWXDOO\

ORVHWKHLUIRUPHUYLJRUDQGKDYHWRJLYHZD\WR³\RXQJHUDQGVPDOOHUULYDOV´

$V WKHVH REVHUYDWLRQV VXJJHVW ILUP HQWU\ DQG ILUP JURZWK DUH LPSRUWDQW

LQJUHGLHQWVLQWKHSURFHVVWKDW6FKXPSHWHUODEHOHGFUHDWLYHGHVWUXFWLRQ

+HXVHGWKLVSKUDVHWRGHVFULEHWKHHFRQRPLFWUDQVIRUPDWLRQRUVWUXFWXUDOFKDQJH

WKDW DFFRPSDQLHV LQQRYDWLRQ LQ ZKLFK QHZ JURZLQJ ILUPV FKDOOHQJH

LQFXPEHQWV ZKR DUH HLWKHU GHVWUR\HG RU IRUFHG WR LQFUHDVH LQQRYDWLRQ DQG

SURGXFWLYLW\ $UURZ  &KULVWHQVHQ  :HQQHNHUV DQG 7KXULN 

%DSWLVWDDQG3UHWR%RVDQG6WDP

$UHWKHVHILUPVHQWUHSUHQHXULDO"'HILQLQJHQWUHSUHQHXUVKLSKDVEHHQFDOOHG³RQH

RIWKHPRVWGLIILFXOWDQGLQWUDFWDEOHWDVNVIDFHGE\UHVHDUFKHUVZRUNLQJLQWKH

ILHOG´3DUNHUSDQGPHDVXULQJLWLVHYHQPRUHGLIILFXOW,WLVSRVVLEOHWR

ILQGQRIHZHUWKDQGHILQLWLRQVRIHQWUHSUHQHXUVKLSWKURXJKRXWWKHKLVWRU\RI

WKH FRQFHSW :HQQHNHUV DQG 7KXULN  +pEHUW DQG /LQN   2I

WKHVH6FKXPSHWHU¶VGHILQLWLRQLVWKHPRVWZHOONQRZQDQGWKHPRVWZHOOXVHG

E\WKHRUHWLFDOUHVHDUFKHUVDQGSROLF\PDNHUVDOLNH+pEHUWDQG/LQN

,Q 6FKXPSHWHU¶V YLHZ WKH HQWUHSUHQHXU ZDV DQ LQQRYDWRU^+H UHJDUGHG WKH

HPHUJHQFHRIDQHZLGHDRUDQHZFRPELQDWLRQRILGHDVDVDQLQYHQWLRQZKLOHKH

UHVHUYHGWKHWHUPLQQRYDWLRQIRUWKHLQWURGXFWLRQRIDQHZFRPELQDWLRQLQWRWKH

HFRQRP\VWUHVVLQJWKDWLQQRYDWLRQVFRXOGWDNHYDULRXVIRUPVLQ

DGGLWLRQWRPHUHWHFKQRORJLFDOLPSURYHPHQWV+HHQXPHUDWHGILYHVXFKIRUPV

WKHLQWURGXFWLRQRIDQHZJRRG²WKDWLVRQHZLWKZKLFKFRQVXPHUVDUH

QRW\HWIDPLOLDU²RURIDQHZTXDOLW\RIDJRRG7KHLQWURGXFWLRQRID

QHZPHWKRGRISURGXFWLRQWKDWLVRQHQRW\HWWHVWHGE\H[SHULHQFHLQWKH

EUDQFKRIPDQXIDFWXUHFRQFHUQHGZKLFKQHHGE\QRPHDQVEHIRXQGHG

XSRQDGLVFRYHU\VFLHQWLILFDOO\QHZDQGFDQDOVRH[LVWLQDQHZZD\RI

KDQGOLQJDFRPPRGLW\FRPPHUFLDOO\7KHRSHQLQJRIDQHZPDUNHW

WKDW LV D PDUNHW LQWR ZKLFK WKH SDUWLFXODU EUDQFK RI PDQXIDFWXUHRI WKH

FRXQWU\LQTXHVWLRQKDVQRWSUHYLRXVO\HQWHUHGZKHWKHURUQRWWKLVPDUNHW

KDV H[LVWHG EHIRUH  7KH FRQTXHVW RI D QHZ VRXUFH RI VXSSO\ RI UDZ

PDWHULDOVRUKDOIPDQXIDFWXUHGJRRGVDJDLQLUUHVSHFWLYHRIZKHWKHUWKLV

VRXUFHDOUHDG\H[LVWVRUZKHWKHULWKDVILUVWWREHFUHDWHG7KHFDUU\LQJ



0DQ\UHVHDUFKHUVIROORZLQWKHVDPHYHLQ)RUH[DPSOH6KDQHLPSOLFLWO\LQFOXGHV

LQQRYDWLRQDVDQHVVHQWLDOFKDUDFWHULVWLFRIHQWUHSUHQHXUVKLS<HW-RKDQVVRQVXJJHVWV

WKDWLQQRYDWRUVDQGHQWUHSUHQHXUVQHHGQRWEHWKHVDPHLQGLYLGXDOVUHIHUULQJWRWKHHYROXWLRQDU\

VWUDQGRIWKRXJKWFDOOHG7KH6ZHGLVK*URZWK6FKRROLQZKLFKWKHVHDUHUHJDUGHGDVGLVWLQFW

IXQFWLRQVWKDWFDQEHSHUIRUPHGE\GLIIHUHQWDFWRUV-RKDQVVRQ .DUOVRQ

RXWRIWKHQHZRUJDQL]DWLRQRIDQ\LQGXVWU\OLNHWKHFUHDWLRQRIDPRQRSRO\

SRVLWLRQ IRU H[DPSOH WKURXJK WUXVWLILFDWLRQ RU WKH EUHDNLQJ XS RI D

PRQRSRO\SRVLWLRQ

$VWKLVHQXPHUDWLRQVXJJHVWVLQQRYDWLRQLVDEURDGDQGGLIIXVHFRQFHSWDWHYHQ

WKHWKHRUHWLFDOOHYHO,QQRYDWLRQSURFHVVHVDUHFRPSOH[XQFHUWDLQDQGGUDZRQD

ZLGHUDQJHRILQSXWVWRJHQHUDWHDZLGHUDQJHRIGLUHFWDQGLQGLUHFWRXWSXWV&RDG

HWDOE7KHILYHFDWHJRULHVSURSRVHGE\6FKXPSHWHULQWHUVHFWDQGFDQEH

FRPELQHGE\ILUPVDQGHQWUHSUHQHXUVLQYDULRXVZD\V7KHHPSLULFDOSKHQRPHQD

VWXGLHGLQWKLVWKHVLVPDSLQWR6FKXPSHWHU¶VILYHFDWHJRULHVDOEHLWLPSHUIHFWO\

)URPDSHUVSHFWLYHLQZKLFKNQRZOHGJHSOD\VDFHQWUDOUROHLWLVQDWXUDOWRUHJDUG

ILUPLQQRYDWLRQDVDQH[SHULPHQWRUDEXVLQHVVK\SRWKHVLVVXEMHFWWRDPDUNHW

WHVW -RKDQVVRQ ^6RPH UHVHDUFKHUV WKHUHIRUH H[SHFW ³D GLUHFW

UHODWLRQVKLSEHWZHHQWKHQXPEHURIQHZEXVLQHVVH[SHULPHQWVRUHQWUDQWVDQG

WKH QXPEHU RI VXFFHVVIXO FDVHV´ &DUUHLUD DQG 7HL[HLUD   7KHUH LV

HYLGHQFHWRVXJJHVWWKDWHQWUHSUHQHXULDOVWDUWXSVDUHLPSRUWDQWOLQNVEHWZHHQWKH

FUHDWLRQ DQG FRPPHUFLDOL]DWLRQ RI NQRZOHGJH SDUWLFXODUO\ DW HDUO\ VWDJHV LQ

ZKLFKNQRZOHGJH UHPDLQV IOXLG %UDXQHUKMHOP  YDQ 3UDDJ DQG 9HUVORRW

$V%DSWLVWDDQG3UHWRQRWHQHZHQWUHSUHQHXULDO

ILUPVJHQHUDWHNQRZOHGJHVSLOORYHUVGLUHFWO\E\LQWURGXFLQJQHZNQRZOHGJHRU

LPSURYLQJRQH[LVWLQJNQRZOHGJHDQGLQGLUHFWO\E\IRUFLQJLQFXPEHQWVWRFRSH

ZLWKILHUFHUFRPSHWLWLRQVHHDOVR%DSWLVWDHWDO%DOGZLQDQG*X

DOWKRXJKVRPHHYLGHQFHVXJJHVWVWKLVLVQRWWKHFDVHIRUWHFKQRORJLFDOODJJDUGV

$JKLRQHWDO

6XFKILUPVFDQDOVRIRVWHUFRPSHWLWLRQDQGWKHHPHUJHQFHRIQHZVHFWRUV7KXULN

 'HMDUGLQ  1HZ DQG \RXQJ ILUPV DUH PRUH SURQH WR H[SORLW QHZ

WHFKQRORJLHVRUNQRZOHGJH-RYDQRYLFDQG5RXVVHDXDQGHQWLUHO\QHZ

SURGXFWVDUHRIWHQSURGXFHGPRUHHIILFLHQWO\LQQHZO\HVWDEOLVKHGILUPVIRXQGHG

IRUWKHSXUSRVHRISURGXFLQJWKHVHYHU\SURGXFWV$XGUHWVFK%DOGZLQDQG

-RKQVRQ%ODFNEXUQDQG.RYDODLQHQ6RPHHYLGHQFHVXJJHVWVWKDW

QHZILUPIRUPDWLRQLVEHQHILFLDOIRUHFRQRPLFJURZWKYDQ6WHOHWDODQG

HPSOR\PHQW JURZWK +DUW DQG 2XOWRQ  7KXULN  DQG LW LV SHUKDSV

XQVXUSULVLQJWKDWQHZILUPIRUPDWLRQLVWKHPRVWFRPPRQDSSURDFKWRPHDVXULQJ

HQWUHSUHQHXUVKLSLQWKHLQGXVWULDORUJDQL]DWLRQOLWHUDWXUH9LYDUHOOL

+RZHYHU WKH UHODWLRQVKLS EHWZHHQ HQWU\ DQG JURZWK LV FRPSOLFDWHG DW EHVW

+XEHUHWDO7KHVHOIHPSOR\HGDUHDKHWHURJHQHRXVJURXSRILQGLYLGXDOV



6HHDOVR3RODQ\LZKROLNHQVWKHVFLHQWLVW¶VVHDUFKIRUWUXWKWRWKHHQWUHSUHQHXU¶VVHDUFK

IRUSURILWV

ZKR DUH PRUH RU OHVV LQYROYHG LQ SURGXFWLYH HQWUHSUHQHXULDO DFWLYLWLHV

%ODQFKIORZHU(DUOHDQG6DNRYD9LYDUHOOL*UDQWHGWKH

FUHDWLYHGHVWUXFWLRQHQWDLOHGE\QHZILUPIRUPDWLRQPD\EHPRUHLPSRUWDQWLQ

FHUWDLQ VHFWRUV 9LYDUHOOL   7KH PDMRULW\ RI VWDUWXSV DUH KRZHYHU

³PDUJLQDO XQGHUVL]HG SRRUSHUIRUPDQFH HQWHUSULVHV´ ZLWK OLPLWHG JURZWK

DPELWLRQV DQG FDSDELOLWLHV 1LJKWLQJDOH DQG &RDG  DQG ³PRVW VPDOO

EXVLQHVVHV DUH EHVW GHVFULEHG DV SHUPDQHQWO\ VPDOO UDWKHU WKDQ DV QDVFHQW

HQWUHSUHQHXULDOILUPV´+HQUHNVRQDQG6DQDQGDMLFI6DQDQGDMLDQG

/HHVRQ

7KHODUJHPDMRULW\RIQHZILUPVZLOOQHYHUEHFRPHWUXHLQQRYDWRUVVRPHWKLQJ

6FKXPSHWHUKLPVHOIH[SOLFLWO\DFNQRZOHGJHG5DWKHUWKH\FDQEH

UHJDUGHG DV PRYLQJ LQ DQG RXW RI D UHYROYLQJ GRRU LQ HIIHFW DV D W\SH RI

³WXUEXOHQFH´$XGUHWVFKDQG)ULWVFK6DQWDUHOOLDQG9LYDUHOOL

%URZQHWDO0RVWILUPVGRQRWJURZDWDOO'DYLGVVRQDQG'HOPDU

DQGPRVWHQWUDQWVGLH\RXQJJHQHUDOO\SHUFHQWRUOHVVVXUYLYHIRUPRUHWKDQ

ILYH \HDUV *HURVNL  2(&'  %DUWHOVPDQ HW DO  'HOPDU DQG

:HQQEHUJ6RPHILUPHQWULHVDUHTXLWHSRVVLEO\RYHUFRQILGHQWPLVWDNHV

&DEUDO*HURVNLDQG0D]]XFDWR

7KLVLVQRWWRVD\WKDWQRQLQQRYDWRUVDUHZRUWKOHVV%DXPROIRU

H[DPSOH GLVWLQJXLVKHV EHWZHHQ LQQRYDWLYH RU 6FKXPSHWHULDQ HQWUHSUHQHXUV

³VXSHUVWDUV´DQGUHSOLFDWLYHHQWUHSUHQHXUVZKRVWDUWILUPVWKDWDUHVLPLODUWR

H[LVWLQJEXVLQHVVHV5HSOLFDWRUVSOD\DQLPSRUWDQWUROHGXULQJWKHVWDJH

RIHFRQRPLFGHYHORSPHQWWKDWIROORZVLQQRYDWLRQZKHQDPRUHJHQHUDODGRSWLRQ

DQGGLIIXVLRQRIQHZNQRZOHGJHRFFXUV%UDXQHUKMHOPVHHDOVR%DXPROHW

DO

$SRWHQWLDOO\PRUHLPSRUWDQWGLVWLQFWLRQLVZKHWKHUHQWUHSUHQHXUVDUHGULYHQE\

RSSRUWXQLW\RUQHFHVVLW\LHZKHWKHURQHEHFRPHVDQHQWUHSUHQHXUEHFDXVHRQH

KDVDJRRGEXVLQHVVLGHDRUIRURWKHUUHDVRQVVXFKDVDODFNRIEHWWHUPHDQVRI

HDUQLQJDOLYLQJ2[HQIHOGW(YDQVDQG/HLJKWRQ6WRUH\

6KDQH9LYDUHOOLRUWKHSXUVXLWRIDUHOD[HGOLIHVW\OH&RDG

 (PSLULFDO HYLGHQFH DVVRFLDWHV LQFUHDVHG XQHPSOR\PHQW ZLWK

LQFUHDVHGHQWU\6WRUH\DQG-RQHV6DQWDUHOOLHWDODQGLWDSSHDUVWKDW

XQHPSOR\HGLQGLYLGXDOVZKREHFRPHVHOIHPSOR\HGSHUIRUPZRUVHFUHDWHIHZHU

MREV DQG KDYH D JUHDWHU SURSHQVLW\ WR H[LW WKDQ WKRVH ZKR FRPH IURP SDLG

HPSOR\PHQW&DUUDVFR3IHLIIHUDQG5HL]H9LYDUHOOL,Q

IDFW LW DSSHDUV WKDW D SRVLWLYH DQG OLQHDU UHODWLRQVKLS FDQ RQO\ EH REVHUYHG

EHWZHHQRSSRUWXQLW\HQWUHSUHQHXUVKLSDQGHFRQRPLFGHYHORSPHQW&DUUHHHWDO

$FV$FVHWDODDQGHYHQWKLVOLQNUHPDLQVFRQWHVWHG9LYDUHOOL

 VHH DOVR $FV DQG 6]HUE   7KXV RQH FDQQRW HTXDWH

HQWUHSUHQHXUVKLS DQG HQWU\ ,Q WKLV UHVSHFW LW EHFRPHV SX]]OLQJ WKDW PDQ\

HQWUHSUHQHXUVKLS SROLFLHV LQ SUDFWLFH VHHP WR GR MXVW WKDW +HQUHNVRQ DQG

6DQDQGDML

+RZGRHVILUPJURZWKUHODWHWRHQWUHSUHQHXUVKLS"1HZIDVWJURZLQJILUPVFDQ

EHFRQVLGHUHGLQGXVWULDOOHDGHUVWKDWDUH³GUDZQ´IURPWKHSRRORIQHZHFRQRPLF

H[SHULPHQWV %RV DQG 6WDP   FI (OLDVVRQ  5RVHQEHUJ 

(PSLULFDOVWXGLHVRIWHQLPSOLFLWO\UHJDUGPHUHYROXPHJURZWKXVXDOO\LQVDOHV

RUHPSOR\PHQWDVHYLGHQFHRISULRUVXFFHVVIXOHQWUHSUHQHXULDODFWLRQ'HOPDU

 'DYLGVVRQ HW DO +RZHYHU DSURSHQVLW\ IRU LQQRYDWLRQJHQHUDOO\

HPHUJHVDVDGULYHURIILUPJURZWK)UHHO&RDGDQG5DR$OWLQGDJHW

DO&RUVLQRDQG*DEULHOHDQGVRPHVWXGLHVFRQILUPDSRVLWLYHOLQN

EHWZHHQLQQRYDWLRQDQGSHUIRUPDQFH9LYDUHOOLDQG$XGUHWVFK&RORPER

DQG*ULOOL

<HWWKHVHOIUHLQIRUFLQJG\QDPLFVLQWKHHFRQRP\PD\OHDGWRDUHODWLYHO\ZHDN

DVVRFLDWLRQEHWZHHQHQWUHSUHQHXULDODELOLW\WRLQQRYDWHDQGDFWXDOSHUIRUPDQFH

DQGHYHQLIILUPVDUHVXFFHVVIXODWLQQRYDWLRQDQGEHQHILWIURPLWLWLVQRWFOHDU

WKDWWKH\ZLOOJURZ.LUFKRII*HURVNLHWDO&RDGDQG+|O]O

'HQUHOODQG/LX&RDGHWDOE7KLVLVSHUKDSVQRWVXUSULVLQJDVLQ

WKH IDFH RI PDUNHW FRPSHWLWLRQ ILUPV PXVW RYHUFRPH D W\SH RI .QLJKWLDQ

XQFHUWDLQW\ UHJDUGLQJ WKH FRQVHTXHQFHV RI QHZ LQYHQWLRQV DQG WHFKQRORJLFDO

UHJLPHV'RVLDQG1HOVRQ,QUHFHQW\HDUVVFKRODUVKDYHFRPHWRIRFXVRQ

³KLJKLPSDFWHQWUHSUHQHXUV´QDPHO\WKRVHWKDWH[KLELWUDSLGJURZWK$FV

<HW DV ZLWK HQWU\ KLJK JURZWK FDQ DW EHVW EH UHJDUGHG DV D IDFHW RI

HQWUHSUHQHXULDODFWLRQ

8QGRXEWHGO\ KRZHYHU ERWK HQWU\ DQG JURZWK DUH RI UHOHYDQFH IRU D UREXVW

G\QDPLFHFRQRP\7KHQH[WVHFWLRQLVDQDWWHPSWWRIXUWKHULOOXVWUDWHKRZ

2.2 Entry, growth and a dynamic economy

,QDNQRZOHGJHEDVHGSHUVSHFWLYHRQWKHHFRQRP\HYHU\DFWRULQWKHPDUNHWFDQ

EH GHVFULEHG DV ERXQGHGO\ UDWLRQDO LH KH RU VKH KDV D OLPLWHG FDSDFLW\ WR

DQDO\]H DQG DFW RQ LQIRUPDWLRQ 6LPRQ   &RQOLVN  

.QRZOHGJHLVGLVWULEXWHGDFURVVDODUJHQXPEHURILQGLYLGXDOVZKRFRQVHTXHQWO\

GLYHUJHLQWKHLUHFRQRPLFYDOXDWLRQVRIQHZLGHDV+D\HNDQGLPSRUWDQW

FRPSRQHQWVRIWKHNQRZOHGJHWKH\SRVVHVVDUHWDFLWLHLPSRVVLEOHWRDUWLFXODWH

3RODQ\L7KHVHIHDWXUHVRIWKHPDUNHWDUHIXQGDPHQWDOVRXUFHVQRWRQO\RI

HUURUDQGIDLOXUHEXWDOVRRIHQWUHSUHQHXULDORSSRUWXQLW\SURYLGHGWKDWWKHV\VWHP

HQDEOHVOHDUQLQJDQGNQRZOHGJHHYROXWLRQ

³7RHUULVKXPDQ´VDLG6HQHFDEXW³WRSHUVHYHUHLQHUURULVGLDEROLFDO´+XPDQ

HUURULVLQKHUHQWLQDOOSULYDWHRUSXEOLFHQGHDYRUVEXWZKDWLVFHQWUDOLVZKHWKHU

RQH OHDUQV IURP RQH¶V IDLOXUHV (FRQRPLF MRXUQDOLVW 7LP +DUIRUG  LGHQWLILHVWKUHHSULQFLSOHVDVFHQWUDOWR³OHDUQLQJIURPIDLOXUH´7KHILUVWSULQFLSOH

VWUHVVHVWKHLPSRUWDQFHRIYDULDELOLW\,QWKHPDUNHWWKLVRFFXUVZKHQILUPVDUH

KHWHURJHQHRXVDQGGLVSHUVHGWKURXJKRXWWKHHFRQRP\DQGGLIIHUZLWKUHVSHFWWR

VL]H DJH WHFKQRORJ\ DQG VR IRUWK $V QR RQH FDQ NQRZ ZKDW ILUPV ZLOO EH

VXFFHVVIXODSULRULWKHUHLVDQHHGIRUDODUJHQXPEHURIH[SHULPHQWV:LQWHU

'RVL'RVLHWDO$XGUHWVFKDQG)ULWVFK0HWFDOIH

&DUUHLUDDQG7HL[HLUD

6HFRQGDVQXPHURXVH[SHULPHQWVZLOOLQHYLWDEO\IDLO+DUIRUGDUJXHVWKDW

WKH\ EH FRQGXFWHG RQ D VFDOH VPDOO HQRXJK WKDW HUURUV DUH VXUYLYDEOH IRU WKH

V\VWHPDVDZKROHLIQRWIRUWKHLQGLYLGXDODFWRU7KXVWKHQHHGIRUGHFHQWUDOL]HG

GHFLVLRQPDNLQJDQGJXDUGLQJDJDLQVWV\VWHPLFULVNV7KLVHPHUJHVLQWKHPDUNHW

EHFDXVHHDFKILUPKDVWRVHOHFWLWVRZQVWUDWHJ\IRUH[DPSOHUHJDUGLQJZKHWKHU

WRH[LWFRQWLQXHDWWKHVDPHVL]HJURZRUUHGXFHLQVL]H9LYDUHOOL

)LUPV DUH FRQVWDQWO\ VHDUFKLQJ IRU QHZ SURILWV E\ VHHNLQJ QHZ WHFKQRORJ\

DOWHUQDWLYHEHKDYLRUVDQGLPSURYHGRUJDQL]DWLRQDOVWUXFWXUHVWKDWZLOODOORZWKHP

WRRXWFRPSHWHWKHLUULYDOV(OLDVVRQ'RVLDQG1HOVRQ^

)LQDOO\+DUIRUGVWUHVVHVWKHLPSRUWDQFHRIVHOHFWLRQLHWKDWVXFFHVVIXO

H[SHULPHQWV DUH SXUVXHG DQG FRSLHG ZKLOH XQVXFFHVVIXO H[SHULPHQWV DUH

DEDQGRQHG7KHSURILWDQGORVVVLJQDOVFRQYH\HGWKURXJKSULFHVDQGGULYHQE\

PDUNHWFRPSHWLWLRQFRPELQHWRIRUPRQHVXFKVHOHFWLRQPHFKDQLVPKRZHYHU

LPSHUIHFW,WHQFRXUDJHVLQGLYLGXDOVWRGHYRWHUHVRXUFHVWRWKHLUPRVWKLJKYDOXHG

XVH +D\HN  HQDEOLQJ VXFFHVVIXO ILUPV WR VXUYLYH DQG JURZ ZKLOH

XQVXFFHVVIXOILUPVH[LW,QWKHIDFHRIFRPSHWLWLRQVXFFHVVIXOILUPVVXUYLYHDQG

WKULYHZKHUHDVXQVXFFHVVIXOILUPVHYHQWXDOO\GHFOLQHDQGH[LWWKHPDUNHW'RVL

DQG1HOVRQ

7KHKLJKH[LWUDWHVFLWHGDERYHPD\LQLWLDOO\DSSHDUWREHDWUHPHQGRXVZDVWHRI

UHVRXUFHVEXWWKH\DUHTXLWHSRVVLEO\DSUHUHTXLVLWHIRUWKHVXFFHVVRIWKHSURFHVV

GHVFULEHGE\+DUIRUG0DQ\HQWULHVDQGH[LWVPD\LQFUHDVHWKHSUREDELOLW\

RIGLVFRYHULQJDQGVHOHFWLQJLQGXVWU\ZLQQHUVWKHUHE\LQFUHDVLQJLQGXVWU\JURZWK

-RKDQVVRQ-RKDQVVRQ6LPLODUO\GHFOLQHVDQGH[SDQVLRQVRI

ILUPV LQ UHVSRQVH WR SULFH PHFKDQLVPV FDQ EH FRQVLGHUHG D IDLUO\ UHDVRQDEOH



$V+HQUHNVRQQRWHVVPDOOHQWUHSUHQHXULDOILUPVFDQRIWHQDFWDVFUXFLDODJHQWVRI

FKDQJH $XGUHWVFK  DQG WKH VPDOO EXVLQHVV VHFWRU FDQ LQ PDQ\ ZD\V IXQFWLRQ DV DQ

LQH[SHQVLYH PHFKDQLVP IRU LGHQWLI\LQJ DQG GHYHORSLQJ HQWUHSUHQHXULDO DQG PDQDJHULDO WDOHQW

/XFDV

PHDQVRIHOLPLQDWLQJORVHUVDYRLGLQJW\SHHUURUVDQGQRWIDLOLQJWRLGHQWLI\

UDGLFDOO\ QHZ DQG SURILWDEOH LQQRYDWLRQV DYRLGLQJ W\SH  HUURUV -RKDQVVRQ

:KDWZHREVHUYHLVKHQFHDFRQWLQXRXVOHDUQLQJSURFHVVJXLGHGE\

WKHSULFHPHFKDQLVPDV+D\HNHPSKDVL]HGRQQXPHURXVRFFDVLRQV



5HJDUGOHVVWKHUHVXOWVRIDOOWKHVHH[SHULPHQWVDQGPLVWDNHULGGHQOHDUQLQJPD\

DSSHDU FKDRWLF 'RVL  9LYDUHOOL   QRWHV ³PDUNHW FKXUQLQJ

WXUEXOHQFHDQGHDUO\IDLOXUH«HPHUJHDVQRUPDODQGH[SHFWHGIHDWXUHVRI

LQGXVWULDOG\QDPLFV´0DUNHWVDUHPHVV\SURQHWRERRPVDQGEXVWVDQGKHUG

EHKDYLRUDQGDV5RVHQEHUJDQG6WHLQPXHOOHUDUJXHPXFKSURGXFWLYLW\

HQKDQFLQJWHFKQLFDOFKDQJHLVLQFUHPHQWDOGLVWULEXWHGDQGJUXEE\7KLVLVOLNHO\

XQDYRLGDEOHEXWPDUNHWVDOVRSURYLGHPHFKDQLVPVWRFUHDWHVRPHRUGHUDPLGWKH

FKDRV)RUH[DPSOHZKLOH6FKXPSHWHU¶VHQWUHSUHQHXUPRYHVWKHPDUNHWRXWRI

HTXLOLEULXP,VUDHO.LU]QHU¶VHQWUHSUHQHXUKDVJHQHUDOO\EHHQGHVFULEHGDV

SOD\LQJ DQ HTXLOLEUDWLQJ UROH WKURXJK WKH SXUVXLW RI DUELWUDJH .LU]QHU  KLPVHOIQHYHUWKHOHVVDUJXHVWKDWWKHFRPPRQGLVWLQFWLRQEHWZHHQ6FKXPSHWHULDQ

DQG .LU]QHULDQ HQWUHSUHQHXUVKLS LV IODZHG DQG WKDW 6FKXPSHWHULDQ

HQWUHSUHQHXUVKLSLVDFWXDOO\RQHIDFHWRIZKDWKHODEHOVDOHUWQHVVLHWKHDELOLW\

WRSHUFHLYHQHZ HFRQRPLF RSSRUWXQLWLHV WKDWQRSULRU HFRQRPLF DFWRUKDV\HW

UHFRJQL]HG

&HUWDLQO\EHLQJVXFFHVVIXOLQDV\VWHPFKDUDFWHUL]HGE\GLVWULEXWHGDQGLPSHUIHFW

NQRZOHGJH UHTXLUHV VNLOOV +RZHYHU WKH W\SH RI VNLOOV WKDW LV UHTXLUHG LV QRW

HQWLUHO\ REYLRXV (QWUHSUHQHXULDO WDOHQW LV XQHYHQO\ GLVWULEXWHG DQG OLNHO\

H[SODLQVVRPHRIWKHGLIIHUHQFHVLQVL]HDFURVVILUPV/XFDV*XLVRDQG

6FKLYDUGL,WKDVEHHQGHPRQVWUDWHGWKDWHGXFDWLRQDQGKXPDQFDSLWDOSOD\

LPSRUWDQW UROHV LQ IRVWHULQJ HQWU\ LQFUHDVLQJ WKH OLNHOLKRRG RI VXUYLYDO DQG

LPSURYLQJSRVWHQWU\SHUIRUPDQFH%DWHV*LPHQRHWDO$FVHWDO

*HURVNLHWDO$UYDQLWLVDQG6WXFNL:KHWKHUHQWUHSUHQHXUVKLS

LV EHVW VHUYHG E\ VSHFLILF UDWKHU WKDQ JHQHUDO VNLOOV QRQHWKHOHVV UHPDLQV

FRQWURYHUVLDO 9LYDUHOOL   +RZHYHU ILUPV VHHP WR SHUIRUP EHWWHU

ZKHQWKH\HQWHUWKHVDPHLQGXVWU\DVWKHLUSDUHQWVXJJHVWLQJWKDWH[SHULHQFH

IURPDVLPLODUW\SHRIEXVLQHVVLVLPSRUWDQW$QGHUVVRQDQG.OHSSHU

2.3 Gibrat’s Law and High-growth firms

,QWKHSHUVSHFWLYHDUWLFXODWHGDERYHZKLFKDGKHUHVWRWKHHYROXWLRQDU\YLHZRI

0DUVKDOOHJ$OFKLDQ1HOVRQDQG:LQWHU-RKDQVVRQ^



6ZHGHQKDVDORQJKLVWRU\RIHYROXWLRQDU\UHVHDUFKGDWLQJEDFNWRDWOHDVWWKHHDUO\WKFHQWXU\

DQGFRQGXFWHGE\HJ:LFNVHOOcNHUPDQDQG'DKPpQ-RKDQVVRQ

WKHLQGLYLGXDOILUPLVFRQVLGHUHGOHVVLPSRUWDQWWKDQWKHFKDUDFWHULVWLFVRIWKH

HQYLURQPHQWLQZKLFKLWRSHUDWHV0HWFDOIH2QHSDUWLFXODUSURSHUW\RIWKH

PDUNHWHFRORJ\ZDVH[DPLQHGE\WKH)UHQFKHQJLQHHU5REHUW*LEUDW+H

REVHUYHGWKDWWKHVL]HGLVWULEXWLRQRI)UHQFKPDQXIDFWXULQJILUPVZDVUREXVWO\

ULJKWVNHZHG:KHUHDVPRVWILUPVZHUHVPDOOVRPHILUPVJUHZWRDVXEVWDQWLDO

VL]H %DVHG RQ WKLV REVHUYDWLRQ *LEUDW GHYLVHG D PRGHO RI WKH G\QDPLFV RI

LQGLYLGXDO ILUPV SUHGLFWLQJ WKDW DOO ILUPV JURZ DW WKH VDPH SURSRUWLRQDO UDWH

LUUHVSHFWLYH RI WKHLU LQLWLDO VL]H ,Q RWKHU ZRUGV ³WKH SUREDELOLW\ RI D JLYHQ

SURSRUWLRQDWHFKDQJHLQVL]HGXULQJDVSHFLILFSHULRGLVWKHVDPHIRUDOOILUPVLQ

DJLYHQLQGXVWU\²UHJDUGOHVVRIWKHLULQLWLDOVL]HDWWKHEHJLQQLQJRIWKHSHULRG´

0DQVILHOG  7KLV XQGHUVWDQGLQJ ZDV ODEHOHG *LEUDW¶V /DZ RI

3URSRUWLRQDWH(IIHFWDQGKDVJHQHUDWHGDODUJHERG\RIOLWHUDWXUHHJ6LPRQDQG

%RQLQL,MLULDQG6LPRQ+DOO(YDQVDE*HURVNL

'XQQHDQG+XJKHV6XWWRQ$XGUHWVFKHWDO

,IWUXH*LEUDW¶V/DZHVWDEOLVKHVWKDWWKHHYROXWLRQRIILUPVL]HLVDUDQGRPZDON

LQ ZKLFK ILUP PDQDJHUV DUH HQGRZHG ZLWK DQ LQLWLDO VXSSO\ RI UHVRXUFHV

FRPSULVLQJILUPFDSDELOLWLHVWHFKQRORJ\DQGVRFLDODQGILQDQFLDOFDSLWDO0DUFK

DQG6KDSLUDS+HOIDWDQG/LHEHUPDQ7KHVXUYLYDORIWKHILWWHVW

LQWKHHYROXWLRQDU\PDUNHWV\VWHPFDQWKHQEHFRQVLGHUHGDSUHUHTXLVLWHIRUWKH

ULJKWVNHZHGILUPVL]HGLVWULEXWLRQ7KHVNHZQHVVFDQEHUHODWHGWRKLJKFRVWVRI

HQWU\RUGLIILFXOWLHVLQLPLWDWLQJVXFFHVVIXOSUDFWLFHV/XWWPHU6HOHFWLRQ

FDQRFFXUZKHQILUPVOHDUQWKHLUDFWXDOSURGXFWLYLW\OHYHOVRQFHWKH\KDYHHQWHUHG

WKHPDUNHWFI-RYDQRYLFRUIROORZDVWULQJRIQHJDWLYHSURGXFWLYLW\VKRFNV

(ULFVRQDQG3DNHV.OHWWHDQG.RUWXP/XWWPHU

7KH TXHVWLRQ WKHQ EHFRPHV GRHV *LEUDW¶V /DZ KROG LH LV ILUP JURZWK

LQGHSHQGHQW RI ILUP VL]H" 7KH DQVZHU WR WKLV VHHPLQJO\ VLPSOH TXHVWLRQ LV

FRPSOLFDWHGE\WKHQXPHURXVYHUVLRQVRIWKHODZ&KHVKHUDQG7VFKRHJO

0DQVILHOGLGHQWLILHGDWOHDVWWKUHH)LUVW*LEUDW¶VODZPD\DSSO\

WR DOO ILUPV ZLWKRXW UHIHUHQFH WR PDUNHW WXUEXOHQFH ZKLFK FKDUDFWHUL]HV ILUP

HQWU\DQGH[LW6HFRQG*LEUDW¶VODZPD\RQO\DSSO\WRVXUYLYLQJILUPV7KLUG

WKHODZPD\RQO\DSSO\WRILUPVZLWKDVL]HWKDWLVVXIILFLHQWIRUWKHPWRSURGXFH

DWDORQJWHUPPLQLPXPDYHUDJHFRVWWKHLQGXVWU\¶VPLQLPXPHIILFLHQWVFDOH

0DQVILHOGUHMHFWHGDOOWKUHHYHUVLRQVRIWKHODZ

7KH HPSLULFDO HYLGHQFH REWDLQHG VLQFH KDV JHQHUDOO\ UHMHFWHG WKH ILUVW FI

$XGUHWVFKHWDO5HLFKVWHLQDQG0LFKDHODQGVHFRQGYHUVLRQVRIWKH

ODZ+DUKRIIHWDO,QVWHDGUHVHDUFKHUVW\SLFDOO\ILQGWKDWVPDOOHUILUPV



DQG.DUOVRQODEHOVXFKUHVHDUFKWKH6ZHGLVK*URZWK6FKRRO



JURZIDVWHUWKDQODUJHILUPVUHJDUGOHVVRIZKHWKHUDOOILUPVRURQO\VXUYLYLQJ

ILUPV DUH FRQVLGHUHG ,Q FRQWUDVW VXEVWDQWLDO HPSLULFDO HYLGHQFH VXSSRUWV WKH

WKLUGYHUVLRQRIWKHODZLHWKDWDERYHDPLQLPXPHIILFLHQWVFDOHILUPJURZWK

ZLOOEHLQGHSHQGHQWRIILUPVL]H0RZHU\+DUWDQG2XOWRQ/RWWLHW

DO$XGUHWVFKHWDO*HURVNLDQG*XJOHU

7KH IDFW WKDW *LEUDW¶V /DZ GRHV QRW JHQHUDOO\ KROG KDV LPSOLFDWLRQV IRU WKH

GLVWULEXWLRQ RI ILUP JURZWK UDWHV ,I *LEUDW¶V /DZ KROGV WKH ILUP JURZWK

GLVWULEXWLRQ VKRXOG EH *DXVVLDQ ZKLFK OLPLWV WKH PDVV ORFDWHG LQ WKH WDLOV

,QGHHGWKHORQJVWDQGLQJSUHGRPLQDQWYLHZZDVWKDW*DXVVLDQODZVJRYHUQHGWKH

JURZWKSURFHVV<HWWKLVGRHVQRWVHHPWREHWKHFDVH,QIDFWWKHOXPSLQHVVDQG

FRPSOH[LW\ RI ILUP JURZWK GHPRQVWUDWHG LQ UHFHQW \HDUV VXJJHVWV WKDW LW LV

LQFRQVLVWHQWZLWKWKH*DXVVLDQIUDPHZRUN6WDQOH\HWDO5HLFKVWHLQHWDO

 5DWKHU LW DSSHDUV WKDW WKH ILUP JURZWK UDWH GLVWULEXWLRQ LV /DSODFLDQ

VKDSHGZLWKWKLFNHUWDLOV6WDQOH\HWDO

,QIDFWRQHRIWKHPRVWUREXVWUHVXOWVLQWKHLQGXVWULDOG\QDPLFVOLWHUDWXUHLVWKDW

JURZWKUDWHVDUHH[WUHPHO\ULJKWVNHZHGDQGWKH/DSODFHVKDSHRIWKHJURZWK

UDWHGLVWULEXWLRQLPSOLHVWKDWDVPDOOQXPEHURIIDVWJURZHUVFUHDWHPRVWQHZMREV

&RDGHWDOD)RUWKLVUHDVRQRQHVWUDQGRIWKHOLWHUDWXUHKDVEHJXQWRIRFXV

RQWKHH[FHSWLRQVWKRVHILUPVWKDWJURZUDSLGO\WKHVRFDOOHGKLJKJURZWKILUPV

%LUFKDQG0HGRII

(YLGHQFHVXJJHVWVWKDW+*)VSURYLGHPRVWRUHYHQDOOQHZMREVLQWKHHFRQRP\

%LUFKDQG0HGRII6WRUH\'DYLGVVRQDQG+HQUHNVRQ'HOPDU

HWDO+DODELVN\HWDO$FVDQG0XHOOHU$ZLGHO\KHOGEHOLHILV

WKDW\RXQJ+*)VDUHLPSRUWDQWIRUVWUXFWXUDOFKDQJHLQWKHHFRQRP\$FV

$FVDQG0XHOOHU+HQUHNVRQDQG-RKDQVVRQ%RVDQG6WDP

 +*)V PD\ SOD\ D SDUWLFXODUO\ LPSRUWDQW UROH ZKHQ LQFXPEHQWV DUH

UHOXFWDQW WR FRQFHGH WKHLU YHVWHG LQWHUHVW LQ ORQJHVWDEOLVKHG PDUNHWV $UURZ

&KULVWHQVHQ:LWW

'HVSLWHWKHYDVWUHVHDUFKRQ+*)VLQUHFHQW\HDUVUHODWLYHO\OLWWOHLVNQRZQDERXW

WKHPZKLFKLVSHUKDSVXQVXUSULVLQJJLYHQWKHLQKHUHQWUDQGRPQHVVRIWKHJURZWK

SURFHVV +RZHYHU VHYHQ VW\OL]HG IDFWV DERXW +*)V GR VWDQG RXW &RDG HW DO

DWKHILUVWWZRRIZKLFKKDYHDOUHDG\EHHQPHQWLRQHG)LUVWJURZWKUDWH

GLVWULEXWLRQVDUHKHDY\WDLOHGUHVHPEOLQJWKHWHQWVKDSHG/DSODFHGLVWULEXWLRQ

%RWD]]LDQG6HFFKL7KLVREVHUYDWLRQPDNHVOHDGVWRWKHVHFRQGIDFWMRE

FUHDWLRQLVKLJKO\FRQFHQWUDWHGDPRQJDIHZILUPV+HQUHNVRQDQG-RKDQVVRQ



7KLUG+*)VDUHRIWHQ\RXQJEXWQRWQHFHVVDULO\VPDOO'HOPDUHWDO$FV

HWDOE,IVWDUWXSVDUHH[FOXGHGWKHQHWMREFUHDWLRQUDWHLVORZHVWDPRQJ

WKHVPDOOHVWILUPV1HXPDUNHWDO%\FRQWUDVWPRVWHPSLULFDOVWXGLHVILQG

DVLJQLILFDQWQHJDWLYHHIIHFWRIDJHRQILUPJURZWKHJ(YDQVD'XQQHDQG

+XJKHV7KXV\RXQJILUPVUDWKHUWKDQVPDOOILUPVDUHUHVSRQVLEOHIRUWKH

EXONRIQHWMREFUHDWLRQ+DOWLZDQJHUHWDO

)RXUWK +*)V GR QRW DSSHDU WR EH PRUH FRPPRQ LQ KLJKWHFK LQGXVWULHV ,I

DQ\WKLQJ WKH\ VHHP WR EH PRUH SUHVHQW LQ VHUYLFH LQGXVWULHV +HQUHNVRQDQG

-RKDQVVRQ  7KLV LV LQWHUHVWLQJ JLYHQ WKH QXPHURXV LQGXVWULDO SROLFLHV

GLUHFWHGWRZDUGKLJKWHFKQRORJ\VHFWRUVVHHIRUH[DPSOH2(&'7KHILIWK

IDFW VWDWHV WKDW KLJK JURZWK LV QRW SHUVLVWHQW RYHU WLPH 3DUNHU HW DO 

'DXQIHOGWDQG+DOYDUVVRQ2QHPD\JRVRIDUDVWRVD\WKDW³>P@RVW+*)V

DUHRQHKLWZRQGHUV´+|O]O7KLVLVDUJXDEO\RIUHOHYDQFHWRDQ\SROLF\

VXJJHVWLRQVUHJDUGLQJKRZWRWDUJHWVXFKILUPV^7KHVL[WKIDFWLVUHODWHGWRWKH

ILIWKLWLVLQKHUHQWO\GLIILFXOWWRSUHGLFWZKLFKILUPVZLOOEHFRPH+*)V7KLVLV

QRWVXUSULVLQJDVPRVWUHJUHVVLRQPRGHOVUHODWHGWRILUPJURZWKRQO\H[SODLQD

VPDOOIUDFWLRQRIWKHYDULDWLRQLQWKHGDWD&RDG

7KHVHYHQWKDQGILQDOIDFWLVWKDWWKHXVHRIGLIIHUHQWJURZWKLQGLFDWRUVVHOHFWVD

GLIIHUHQWVHWRI+*)V7KLVLVRISDUWLFXODUUHOHYDQFHDVPRVWHDUO\VWXGLHVIRFXV

RQ QHW MRE FUHDWLRQ +HQUHNVRQ DQG -RKDQVVRQ  2QH FDQ FHUWDLQO\ DVN

ZKHWKHU HPSOR\PHQW LV D UHOHYDQW YDULDEOH LI WKH JRDO LV D KHDOWK\ HFRQRP\

HVSHFLDOO\EHFDXVHWKHHYLGHQFHDVVRFLDWHVDODUJHUQXPEHURI+*)VZLWKDODUJHU

QXPEHURIILUPVWKDWH[SHULHQFHGHFOLQH%UDYR%LRVFD+|O]O,QWKLV

UHVSHFW WKH REVHUYDWLRQ WKDW WKH UHODWLRQVKLS DPRQJ HPSOR\PHQW VDOHV DQG

SURGXFWLYLW\JURZWKVHHPVZHDNDWEHVWVKRXOGEHDFDXVHIRUFRQFHUQ%RWWD]]L

HWDO6KHSKHUGDQG:LNOXQG+RZHYHU&RDGHWDOEDUHDEOH

WR GHPRQVWUDWH WKDW JURZWK EHJLQV ZLWK HPSOR\PHQW ZKLFK OHDGV WR IXWXUH

LQFUHDVHVLQ5 'VSHQGLQJDQGSURGXFWVWKDWDUHQHZWRWKHPDUNHWZKLFKLQ

WXUQOHDGVWRVDOHVLQFUHDVHV7KHIDLOXUHWRREVHUYHFRUUHVSRQGLQJIHHGEDFNIURP

VDOHVWRHPSOR\PHQWJURZWKLVUHOHYDQWWRSROLF\

+RZHYHU+*)VDUHQRWWKHRQO\DVSHFWRIHQWUHSUHQHXUVKLSUHVHDUFKIRUZKLFK

WKHUHOHYDQFHRILQVWLWXWLRQVDQGHFRQRPLFSROLF\LVFOHDU7KHODVWSDUWRIVHFWLRQ

LVGHYRWHGWRGLVFXVVLQJVXFKTXHVWLRQVLQJUHDWHUGHWDLO



2Q D UHODWHG QRWH &RDG HW DO E  DUH DEOH WR GHPRQVWUDWH WKDW VRFDOOHG +LJK

,QQRYDWLYH)LUPV+,)VGHILQHGLQWHUPVRI5 'LQWHQVLW\RUDKLJKVKDUHRIQHZWRPDUNHW

SURGXFWV DUH KLJKO\ SHUVLVWHQW $V PHQWLRQHG DERYH KRZHYHU WKH UHODWLRQVKLS EHWZHHQ

LQQRYDWLRQDQGJURZWKLVFRPSOH[ZLWKPDQ\+,)VH[KLELWLQJOLWWOHLIDQ\JURZWKZKLOHPDQ\

+*)VDUHQRWLQQRYDWLYH+,)VDUHQRPRUHOLNHO\WREHIDVWJURZHUVWKDQRWKHUILUPV



2.4 Institutions and policy

(QWUHSUHQHXUVDUHSURGXFWVRIWKHLUHQYLURQPHQW7KLVFDQEHXQGHUVWRRGZKHQ

FRQVLGHULQJ DQ DGGLWLRQDO DQG DUJXDEO\ OHVV QREOH UROH IRU WKH HQWUHSUHQHXU

GHVFULEHGE\%DXPROZKRH[WHQGV6FKXPSHWHU¶VWD[RQRP\E\

LQFOXGLQJLQQRYDWLRQVLQUHQWVHHNLQJSURFHGXUHV

6XSSRVHWKDWLWWXUQVRXW«WKDWDWDQ\WLPHDQGSODFHWKHPDJQLWXGHRI

WKHEHQHILWWKHHFRQRP\GHULYHVIURPLWVHQWUHSUHQHXULDOWDOHQWVGHSHQGV

VXEVWDQWLDOO\ DPRQJ RWKHU YDULDEOHV RQ WKH DOORFDWLRQ RI WKLV UHVRXUFH

EHWZHHQSURGXFWLYHDQGXQSURGXFWLYHHQWUHSUHQHXULDODFWLYLWLHV«7KHQ

WKHUHDVRQVIRULQFOXGLQJDFWVRIWKHODWWHUW\SHLQWKHOLVWRIHQWUHSUHQHXULDO

DFWLYLWLHVEHFRPHFOHDU

,WQRWRQO\PDWWHUVZKHWKHUHQWUHSUHQHXUVKLSLVDFWLYHEXWLIVRZKHWKHULWLVXVHG

SURGXFWLYHO\ XQSURGXFWLYHO\ RU GHVWUXFWLYHO\ %DXPRO  %KDJZDWL 

0XUSK\HWDO7KXVWKHRXWFRPHVRIWKHH[SHULPHQWDOSURFHVVGHVFULEHG

DERYHFDQEHDWWULEXWHGWRDGHHSHUVHWRIIDFWRUVLQWKDWWKHH[WHQWDQGW\SHRI

HQWUHSUHQHXUVKLSGHSHQGRQLQVWLWXWLRQVRIERWKIRUPDODQGLQIRUPDOFKDUDFWHU

1RUWKDQG7KRPDV5RVHQEHUJDQG%LUG]HOOGH6RWR

%DXPRO1RUWK0XHOOHUDQG7KRPDV%XVHQLW]HW

DO5H\QROGVHWDO+HQUHNVRQ$FHPRJOXDQG5RELQVRQ

6DKXWDQG3HULV2UWL]

1RUWKGHILQHVLQVWLWXWLRQVDV³WKHUXOHVRIWKHJDPHLQDVRFLHW\RUPRUH

IRUPDOO\«WKHKXPDQO\GHYLVHGFRQVWUDLQWVWKDWVKDSHKXPDQLQWHUDFWLRQ´

,QVWLWXWLRQVKHQFHLPSRVHUHVWULFWLRQVRQDFWRUVE\GHILQLQJUXOHVDQGERXQGDULHV

IRUZKDWDFWLYLWLHVFDQEHFRQVLGHUHGOHJLWLPDWH6FRWW^0RUHRYHU

WKHFRQVWUDLQWVDOORZIRUQHZDQGRWKHUZLVHQRQH[LVWHQWSRVVLELOLWLHVFKRLFHV

DQG FRXUVHV RI DFWLRQ +RGJVRQ   %\ OLPLWLQJ DQG FUHDWLQJ

HQWUHSUHQHXULDORSSRUWXQLWLHVWKHLQVWLWXWLRQDOHQYLURQPHQWDIIHFWVWKHGLVFRYHU\

H[SORLWDWLRQ DQG GLVVHPLQDWLRQ RI NQRZOHGJH DQG FRQVHTXHQWO\ HFRQRPLF

GHYHORSPHQW+ZDQJDQG3RZHOO0DQRORYDHWDO$FVHWDO

 $OYDUH] DQG 8UEDQR  7KRUQWRQ HW DO  8UEDQR DQG $OYDUH]

^



,QWKHIROORZLQJ,SULPDULO\FRQVLGHUZKDWRQHPLJKWWHUPWKHH[SOLFLWO\OHJDODQGUHJXODWRU\

LQVWLWXWLRQDOSLOODU7KHUHDUHKRZHYHURWKHUW\SHVRILQVWLWXWLRQVRIDPRUHLQIRUPDOQDWXUH

UHODWHGWRYDOXHVURRWHGLQVRFLDOQRUPVDQGFXVWRPVRUWKHPRUHRUOHVVFRQVFLRXVFRJQLWLYH

EHOLHIVWKDWJXLGHDJHQWVFI0DUFKDQG2OVHQ6FRWW%UXWRQHWDO8UEDQRDQG

$OYDUH]

6XFKLQVWLWXWLRQDOFRQVWUDLQWVUHJDUGLQJHJODERUPDUNHWVWD[DWLRQUHGWDSHSURFHGXUHVDQG

SURSHUW\ULJKWVDUHSHUKDSVRIJUHDWHVWUHOHYDQFHIRUGHYHORSLQJFRXQWULHVFI*RHGKX\VDQG

7KHLQVWLWXWLRQVJRYHUQLQJWKHSURWHFWLRQRISURSHUW\ULJKWVIRUERWKPDWHULDODQG

LQWHOOHFWXDO SURSHUW\ DUH UHJDUGHG DV IXQGDPHQWDO WR WKH SURPRWLRQ RI

HQWUHSUHQHXULDO DFWLYLWLHV FRQGXFLYH WRNQRZOHGJH DQG JURZWK%DXPRO 

-RKQVRQHWDO%RHWWNHDQG&R\QH$FHPRXJOXHWDO6SHQFHU

DQG*RPH](OLDVVRQ3RZHOO*DQVDQG3HUVVRQ7KH

QDWXUH RI JRYHUQPHQWDO UHJXODWLRQ LV DOVR LPSRUWDQW ([FHVVLYH UXOHV DQG

SURFHGXUHVPD\IRUH[DPSOHGLVFRXUDJHSRWHQWLDOHQWUHSUHQHXUV%HJOH\HWDO

'DQD'MDQNRYHWDO*Q\DZDOLDQG)RJHODQGKDPSHU

WKHSURFHVVRIFUHDWLYHGHVWUXFWLRQ&DEDOOHURDQG+DPPRXU'MDQNRYHWDO

 'HVDL HW DO  /D 3RUWD HW DO   ,Q JHQHUDO FRQWUDFW

HQIRUFHPHQWUHJXODWLRQZKLFKDIIHFWVWKHHIILFLHQF\RIWKHOHJDOV\VWHPWHQGVWR

LPSURYHWKHSRWHQWLDOIRUHQWU\DQGHQKDQFHLQQRYDWLRQ'MDQNRY/D3RUWD

HWDO$LGLVHWDO0DQ\HPSLULFDOVWXGLHVVXJJHVWWKDWULJLGODERU

PDUNHWUHJXODWLRQVKDYHDQHJDWLYHLPSDFWRQHQWUHSUHQHXULDODFWLYLW\.ODSSHU

HWDO0LFFRDQG3DJpVYDQ6WHOHWDO$XWRUHWDO.XJOHU

DQG3LFD6WHSKHQHWDODQGWKHQHJDWLYHHIIHFWDSSHDUVJUHDWHVWIRU

RSSRUWXQLW\EDVHGHQWUHSUHQHXUVKLS&LFFRQHDQG3DSDLRDQQRX$UGDJQD

DQG/XVDUGL%RVPDDQG/HYLH

7D[HVDQGOLTXLGLW\FRQVWUDLQWVDOVRDIIHFWHQWUHSUHQHXUVKLS6HHHJ(YDQVDQG

-RYDQRYLF+XUVWDQG/XVDUGL$OHVLQDHWDO'MDQNRYHWDO

)LRUL HW DO  *HQWU\ DQG +XEEDUG  1LFROHWWL DQG 6FDUSHWWD 

'MDQNRY$UQROGHWDO<HWWKHWD[HIIHFWLVVHQVLWLYHWRWKHSRWHQWLDO

IRUDUELWUDJHEHWZHHQWD[EDVHV*HQWU\DQG+XEEDUG3DUNHUDQG5REVRQ

&XOOHQDQG*RUGRQ7D[HVWKDWUHGXFHRSSRUWXQLWLHVIRULQGLYLGXDO

ZHDOWKWKHUHE\FRQWULEXWLQJWRILQDQFLDOFRQVWUDLQWVDUHDOVRUHSRUWHGWRKDYHD

QHJDWLYHHIIHFWRQHQWUHSUHQHXUVKLS+DQVVRQ7KHDGPLQLVWUDWLYHEXUGHQ

DVVRFLDWHG ZLWK WD[HV IXUWKHUPRUH VHHPV WR RQO\ KDYH D QHJDWLYH HIIHFW RQ

HQWUHSUHQHXUV'MDQNRYHWDO

7KHLPSRUWDQFHRIWKHLQVWLWXWLRQDOFRQWH[WIRU6ZHGHQ¶VHFRQRPLFGHYHORSPHQW

LVTXLWHHYLGHQW6ZHGHQ¶VUHPDUNDEOHJURZWKH[SHULHQFHGXULQJWKHSHULRG

ZDVSUHFHGHGE\VHYHUDOLQVWLWXWLRQDOFKDQJHVVXFKDVWKHLQWURGXFWLRQRI

FRPSXOVRU\VFKRROLQJDQGDQHZOLPLWHGOLDELOLW\ODZWKHDEROLVKPHQWRIJXLOGV

DQGIUHHGRPRIWUDGH6FK|Q%UDXQHUKMHOP,QUHFHQW\HDUV6ZHGHQ

JHQHUDOO\ UDQNV ORZ RQ LQWHUQDWLRQDO FRPSDULVRQV RI WKH UDWHV RI VHOI

HPSOR\PHQWQHZILUPIRUPDWLRQDQGHQWUHSUHQHXUVKLS'HOPDUDQG'DYLGVVRQ

,QFRQWUDVW$QGHUVVRQDQG.OHSSHUILQGWKDWWKHUDWHRIQHZILUP

IRUPDWLRQLVVLPLODUWRWKDWRIRWKHUFRXQWULHVZKLOH/HHVRQDQG6DQDQGDML



6OHXZDHJHQ6OHXZDHJHQDQG*RHGKX\V%HFNHWDO&KHQDQG3XWWLQDQXQ

/HHHWDO$UGDJQDDQG/XVDUGL

GHPRQVWUDWHWKDW6ZHGHQUDQNVUHDVRQDEO\ZHOOZKHQWKHQXPEHURIELOOLRQDLUHV

SHUFDSLWDLVXVHGDVDQDOWHUQDWLYHPHDVXUHRIKLJKLPSDFWHQWUHSUHQHXULDODELOLW\

6ZHGHQ¶VOHDGLQJILUPVDUHQHYHUWKHOHVVROGDQGPDQ\RIWKHPZHUHIRXQGHGLQ

WKH ^WK FHQWXU\ +HQUHNVRQ  DOWKRXJK WKH IUDFWLRQ RI ODUJH ILUPV KDV

GHFOLQHG LQ UHFHQW \HDUV +HQUHNVRQ HW DO  $V $QGHUVVRQ DQG .OHSSHU

QRWHWKHFRQWHPSRUDU\6ZHGLVKSROLF\HQYLURQPHQWLVGLVWLQFWLYHLQZD\V

WKDWPLJKWKDYHGLVFRXUDJHGWKHIRUPDWLRQRIQHZILUPV1RWDEO\6ZHGHQKDVD

KLJKUDWLRRIWD[HVWR*'3)XUWKHUPRUHWKHFRXQWU\KDVYHU\KLJKPDUJLQDOWD[HV

RQODERUDQGFDSLWDOLQFRPHHDUQHGE\HQWUHSUHQHXUVVHH6WHQNXODHWDO'X

5LHW]HWDODQGDQXQIDYRUDEOHWD[DWLRQRIVWRFNRSWLRQVUHODWLYHWR

RWKHUFRXQWULHV+HQUHNVRQ

1HYHUWKHOHVV6ZHGHQUDQNVIDYRUDEO\LQLQWHUQDWLRQDOLQVWLWXWLRQDOFRPSDULVRQV

RISURSHUW\ULJKWVSURWHFWLRQVPRQHWDU\SROLF\IUHHGRPRIWUDGHDQGJHQHUDO

UHJXODWLRQ*ZDUWQH\HWDO/DERUPDUNHWUHJXODWLRQVDQGWKHVL]HRIWKH

JRYHUQPHQWDUHUHJDUGHGDVGUDZEDFNVDFFRUGLQJWRWKHVDPHUDQNLQJVEXWWKH

UDWLRRIWD[UHYHQXHVWR*'3GHFOLQHGE\VHYHUDOSHUFHQWDJHSRLQWVEHWZHHQ

DQG  LQ SDUW GXH WR WKH PDMRU WD[ UHIRUP RI  6¡UHQVHQ 

1RQHWKHOHVVWD[UDWHVDQGWD[UHYHQXHVUHODWLYHWR*'3UHPDLQKLJKUHODWLYHWR

RWKHU 2(&' FRXQWULHV 6¡UHQVHQ  2(&'  ,Q DGGLWLRQ YDULRXV

HPSOR\HH VHFXULW\ SURYLVLRQV DQG ZDJH SROLFLHV PD\ DOVR GLVFRXUDJH WKH

IRUPDWLRQRIQHZILUPVDQGILUPJURZWK'DYLVDQG+HQUHNVRQ6NHGLQJHU



,WLVLPSRUWDQWWRUHFDOOWKHVHFRQVLGHUDWLRQVZKHQGLVFXVVLQJSRVVLEOHPHDVXUHV

WRVWLPXODWHHQWUHSUHQHXUVKLSDQGLQQRYDWLRQLQWKH6ZHGLVKHFRQRP\,WVKRXOG

EHDGGHGWKDWLQVWLWXWLRQVDUHQRWLGHQWLFDOWRSROLF\1RWDEO\*ODHVHUHWDO DUJXHWKDWDQRIWHQRYHUORRNHGDQGHVVHQWLDODVSHFWRILQVWLWXWLRQVLVWKDWWKH\

QHHGWREHUHDVRQDEO\SHUPDQHQWRUGXUDEOHVHHDOVR6FRWW,QWKLVYLHZ

VKRUWWHUP SROLFLHV GR QRW TXDOLI\ DV LQVWLWXWLRQV 7KH\ PD\ DOVR FUHDWH

XQFHUWDLQW\ WKDW KDPSHUV HQWUHSUHQHXUVKLS 3UHFLVHO\ ZKHUH WKH OLQH EHWZHHQ

SROLF\DQGLQVWLWXWLRQVLVGUDZQLVQRWREYLRXV)RUH[DPSOHDSROLF\WRUHPRYH

EDUULHUVWRHQWU\E\UHGXFLQJWKHWLPHUHTXLUHGWRVWDUWDEXVLQHVVWKHQXPEHUDQG

FRVWVRISHUPLWVDQGOLFHQVHVUHTXLUHGRUWKHPLQLPXPFDSLWDOUHTXLUHPHQWVRID

QHZILUPPD\KDYHDQHIIHFWRQWKHEURDGHULQVWLWXWLRQDOIUDPHZRUNLQWKHODERU

PDUNHWYDQ6WHOHWDO

3ROLFLHV PD\ DOVR GLIIHU VXEVWDQWLDOO\ LQ WKHLU JHQHUDOLW\ )RU H[DPSOH HQWU\

VXEVLGLHVGLUHFWHGWRDOOILUPVDUHOLNHO\WRJHQHUDWHDGYHUVHHIIHFWV'HDGZHLJKW

HIIHFWVPD\RFFXUZKHQWKHEHQHILFLDU\LVDILUPWKDWZRXOGKDYHVXUYLYHGDQG

JURZQ LQ WKH DEVHQFH RI WKH VXEVLG\ $ SRWHQWLDOO\ JUHDWHU GLVWRUWLRQ FDQ EH

DWWULEXWHG WR D VXEVWLWXWLRQ HIIHFW ZKLFK RFFXUV ZKHQ VXEVLGLHV VXSSRUW ³D

UHYROYLQJ GRRU ILUP ZKLFK ZRXOG KDYH H[LWHG WKH PDUNHW LQ DEVHQFH RI WKH

VXEVLG\´9LYDUHOOL7KLVLVOLNHO\WREHGHWULPHQWDOWRPRUHHIILFLHQW

SRWHQWLDO HQWUDQWV DQG GHOD\ WKH H[LW RI OHVV HIILFLHQW QHZERUQ ILUPV LQ RWKHU

ZRUGVLWZLOOKDPSHUPDUNHWVHOHFWLRQ

6RPHUHVHDUFKHUVWKHUHIRUHIDYRUVHOHFWLYHDQGWDUJHWHGPHDVXUHVDGGUHVVHGWR

PRUHSURPLVLQJSRWHQWLDOHQWUHSUHQHXUVVXFKDVWKRVHFKDUDFWHUL]HGE\VXSHULRU

KXPDQFDSLWDORUKLJKTXDOLW\LQQRYDWLYHLGHDV6KDQH9LYDUHOOL

1RWDEO\ JD]HOOHV LQ \RXQJ 5 'LQWHQVLYH FRPSDQLHV UHFHQWO\ JDLQHG D

IDYRUDEOHSRVLWLRQLQ(8VWDWHDLGUXOHVIRULQQRYDWLRQVXSSRUW6FKQHLGHUDQG

9HXJHOHUV&RDGHWDOD

6XFK WDUJHWHG SROLFLHV PD\ EH EHQHILFLDO WR HQWUHSUHQHXUVKLS LQQRYDWLRQ DQG

JURZWKEXWWKH\PD\DOVRSRVHDWKUHDWWRSURGXFWLYHHQWUHSUHQHXULDODFWLYLW\

'DQD  *RYHUQPHQWV KDYH D SRRU WUDFN UHFRUG LQ GHVLJQLQJ DQG

LPSOHPHQWLQJWDUJHWHGLQGXVWULDOSROLFLHVLQDZHOIDUHHQKDQFLQJPDQQHU/HUQHU

,ILWLVUHODWLYHO\PRUHSURILWDEOHWROREE\JRYHUQPHQWVIRUIXQGVWKDQWR

HQJDJHLQLQQRYDWLRQWKHQPDQ\HQWUHSUHQHXUVZLOOFKRRVHWRIRFXVUHODWLYHO\

PRUHRIWKHLUUHVRXUFHVRQOREE\LQJ%DXPRO)XUWKHUPRUHDNH\HOHPHQW

RI D PDUNHW HFRQRP\ LV LWV UHVWOHVV FKDUDFWHU 0HWFDOIH HW DO  7KLV

NQRZOHGJH SUREOHP PHDQV WKDW WKHUH LV QR ³FU\VWDO EDOO´ WKDW FDQ EH XVHG WR

SUHGLFWDFDSLWDOLVWHFRQRP\¶VIXWXUHLQGXVWULDOVWUXFWXUH%RVDQG6WDP



$V DQ H[DPSOH FRQVLGHU WKDW VPDOO ILUPV ZHUH ORQJ GHHPHG LQHIILFLHQW DQG

ZDVWHIXO*DOEUDLWKLQODUJHSDUWGXHWR6FKXPSHWHUKLPVHOI:KLOH

KLVHDUO\ZRUNHPSKDVL]HGWKHLPSRUWDQFHRI\RXQJDQGVPDOOILUPVIRU

LQQRYDWLRQKHVXEVHTXHQWO\FDPHWREHOLHYHWKDWODUJHILUPVZRXOGH[KLELW

VXSHULRU LQQRYDWLRQ DQG JURZWK EHQHILWLQJ IURP LQFUHDVLQJ UHWXUQV WR VFDOH

0DOHUEDDQG2UVHQLJR,WVHHPHGLQHYLWDEOHWRPDQ\RIKLVFROOHDJXHVWKDW

WKHH[SORLWDWLRQRIHFRQRPLHVRIVFDOHE\ODUJHFRUSRUDWLRQVZRXOGEHFRPHWKH

SULPDU\ GULYHU RI LQQRYDWLRQ DQG WHFKQRORJLFDO FKDQJH *DOEUDLWK 

:LOOLDPVVRQ  &KDQGOHU  ,QGLYLGXDO HIIRUWV DQG KHQFH LQGLYLGXDO

LQFHQWLYHV ZRXOG GHFOLQH LQ LPSRUWDQFH DQG VPDOO ILUPV DQG HQWUHSUHQHXUV

WKHUHIRUHFDPHWREHFRQVLGHUHGPDUJLQDOHOHPHQWV+HQUHNVRQ^7KLV

YLHZ LQIRUPHG PXFK RI 6ZHGHQ¶V LQGXVWULDO SROLF\ LQ WKH SRVWZDU HUD FI

+HQUHNVRQDQG-RKDQVVRQ+HQUHNVRQDQG-DNREVVRQ

7KLVYLHZKDVFKDQJHGFRQVLGHUDEO\LQWKHLQWHUYHQLQJSHULRG6PDOOILUPVDUHQR

ORQJHUUHJDUGHGZLWKGLVGDLQ%LUFK%URFNDQG(YDQV/RYHPDQDQG

6HQJHQEHUJHU/DQGVWU|P+HQUHNVRQDQG-RKDQVVRQDQGDORW

RI FRQWHPSRUDU\ LQGXVWULDO SROLFLHV DUH GLUHFWHG WRZDUGV VPDOO ILUPV 6WRUH\

$V$XGUHWVFKDQG7KXULNDUJXHKLJKO\GHYHORSHGHFRQRPLHVKDYH

H[SHULHQFHGDVKLIWIURPDPDQDJHGWRDQHQWUHSUHQHXULDOHFRQRP\DQGZKLOH

WKH PDQDJHG HFRQRP\ ZDV GHSHQGHQW RQ ODUJH ILUPV WKH HQWUHSUHQHXULDO

HFRQRP\LVPRUHGHSHQGHQWRQVPDOOILUPV

7KLVGHYHORSPHQWLVKRZHYHUDPDWWHURIUHODWLYHFKDQJH%DXPRO HPSKDVL]HV WKH FRPSOHPHQWDU\ UROHV RI ILUPV RI GLIIHUHQW VL]HV /DUJH

LQFXPEHQWV SHUIRUP ZHOO LQ WUDGLWLRQDO WHFKQRORJLFDO ILHOGV WKDW ZHUH DOUHDG\

EDVHGRQODUJHLQQRYDWLYHDFWLYLWLHVZKLOHQHZILUPVH[SORUHQHZDUHDV6PDOO

ILUPV DQG LQGLYLGXDO LQQRYDWRUV KHQFH GHYHORS WKH PRUH UHYROXWLRQDU\

EUHDNWKURXJKV 7KHVH ILUPV DUH RIWHQ OHVV 5 'LQWHQVLYH EXW DUH

HQWUHSUHQHXULDOO\ JHDUHG &RUSRUDWH UHVHDUFK WKHQ FRQWULEXWHV UHOLDELOLW\

HQKDQFHGSRZHUDQGHDVHRIXWLOL]DWLRQZKLFKHQDEOHVWKHVHILUPVWRSURYLGHD

PXOWLWXGH RI ³LQFUHPHQWDO LPSURYHPHQWV´ WKH VXP RI ZKLFK SURYHV KLJKO\

LPSRUWDQWLQWKHORQJUXQ$FVDQG$XGUHWVFKVHHDOVR/DVVHQHWDO

5REVRQHWDO7KHUHIRUHLWFDQEHDUJXHGWKDWDOOW\SHVRIILUPVDUHQHHGHG

LQDPRGHUQHFRQRP\

5DWKHU WKDQ SROLFLHV IRU SLFNLQJ ZLQQHUV RQH PD\ KHQFH IRFXV RQ GHHSHU

LQVWLWXWLRQDOFRQGLWLRQVRIWKHW\SHGHVFULEHGDERYH2ISDUWLFXODUUHOHYDQFHWR

6ZHGHQLVSHUKDSVWKHHYLGHQFHVXJJHVWLQJWKDWVWULFWHPSOR\PHQWSURWHFWLRQV

UHGXFH VHOIHPSOR\PHQW 5REVRQ  DQG DUH DVVRFLDWHG ZLWK UHGXFHG

SUREDELOLWLHVRIVWDUWLQJLQQRYDWLYHILUPVDQGILUPVZLWKKLJKJURZWKH[SHFWDWLRQV

6WDPDQG1RRWHERRP+HQUHNVRQDQG-RKDQVVRQHPSKDVL]HWKH

SLYRWDOUROHSOD\HGE\ODERUPDUNHWUHJXODWLRQDQGDOVRKLJKOLJKWWKHHIIHFWVRI

WD[VWUXFWXUHVIRUIRVWHULQJ+*)V+RZHYHUZKLOHWKHUHLVFHUWDLQO\VFRSHIRU

LQVWLWXWLRQDOGHVLJQLQVWLWXWLRQVDUHRIWHQQRWWKHSURGXFWRILQWHQWLRQDOGHVLJQ

EXW UDWKHU WKH RXWFRPH RI SROLWLFDO VWUXJJOHV DQG QHJRWLDWLRQV +D\HN 

$FHPRJOX DQG 5RELQVRQ  7KH RXWFRPH RI DQ\ LQLWLDWLYH WR FKDQJH

LQVWLWXWLRQVLVKHQFHVKURXGHGLQXQFHUWDLQW\

+DYLQJSURYLGHGWKLVRYHUYLHZRIWKHOLWHUDWXUHLQWKHILHOGVRIHQWUHSUHQHXUVKLS

HFRQRPLFG\QDPLVPILUPHQWU\DQGJURZWKZHWXUQWRDGLVFXVVLRQRITXHVWLRQV

UHODWHGWRWKHGDWDDQGPHWKRGRORJ\XVHGLQWKLVWKHVLV

3 Data, Measurements, and Limitations

&KRLFHV UHODWHG WR GDWD PHDVXUHPHQWV DQG GHILQLWLRQV DUH LPSRUWDQW LQ DQ\

UHVHDUFKILHOG,QHQWUHSUHQHXUVKLSUHVHDUFKWKHULVNVRIREWDLQLQJUHVXOWVWKDWDUH

LQIOXHQFHGRUHYHQGULYHQE\PHWKRGRORJLFDOFKRLFHVDUHODUJH)RUH[DPSOHLI

HQWUHSUHQHXUVKLS SROLF\ LV SULPDULO\ LQWHQGHG WR SURPRWH LQQRYDWLYH