Business cycles and start-ups across industries: An empirical analysis for Germany

We analyze whether start-up rates in different industries systematically change with business cycle variables. We mostly find correlations that are consistent with coun- ter-cyclical influences of the business cycle on entries in both innovative and non-in- novative industries. Entries into the large-scale industries, including the innovative part of the manufacturing sector, are more strongly influenced by changes in the cy- clical component of unemployment, while entries into small-scale industries, like the knowledge intensive services, are merely influenced by changes in the cyclical com- ponent of GDP. Business formation may therefore have a stabilizing effect on the economy.