The determinants of new firm formation in italian manufacturing

This paper focuses on entry of small firms in the manufacturing industries. It is argued that the exit option can be viewed as an insurance against risks of failure, increasing the likelihood of entry in an uncertain environment; the result is implicit in recent stochastic models of competition and entry decision under uncertainty. A regression model of industry birth rates in the Italian manufacturing industries provides empirical evidence on the impact of factors determining the decision to enter and the supply of new entrepreneurs. In our estimates, yearly entry rates are found to decrease with entry costs and barriers and to increase with market growth, expected growth of small firms, risks of failure and an index of spatial concentration of activities.