A demographic approach to firm dynamics: formation of new firms and survival of old ones

This paper introduces a new approach to firm dynamics, named demography of firms. It is the study of demographic events in a population of firms. The paper argues that within a demographic approach, attention should be paid to a broad range of firm dynamics, including both new firm formation and survival and employment growth among long-established firms. The paper presents two arguments for this opinion. First, a strong new firm formation is not a generic phenomenon among economic sectors, but seems to be sector-specific. As a consequence, regional variation in firm birth rates is very dependent upon the sectoral composition in regions. Secondly, the employment contribution of newly established firms seems also to be sector-specific and more importantly, rather over-estimated. Within a demographic approach to firm dynamics, this paper will first examine firm birth rates and spatial variation in these rates. Attention will also be given to survival rates and employment effects of new firms. The focus of attention will then shift to the analysis of the survival of long-established firms, and strategies that enable firms to continue to exist. To this purpose, a specific micro-approach to strategic change will be introduced, named Company Life-History Analysis. An 'evolutionary' perspective to firm survival will then be linked up with management theory and elements of spatial innovation (diffusion) theory. It will particularly be explored empirically what the support of the local environment may be in successful survival strategies of long-established small and medium-sized firms in the Netherlands. The paper will conclude with a number of implications for further research.