Determinants of New Firm Formation in Taiwan

The main objective of this paper is to explore the factors influencing new firm formation in Taiwan. The paper makes use of both cross-sectional and time-series data for the period 1986–2001, using the fixed effect model to try to determine the factors affecting new firm formation. The impacts of industry health, production costs, capital cost, number of employed persons, the unemployment rate, and the economic growth rate are found to be more or less as anticipated. However, only production costs, capital cost, and the unemployment rate are significant with confidence levels of 95% and 90%, respectively. The results also suggest that Taiwan currently is located at the unemployment borderline proposed by Hamilton, and thus a recession-push is already operating, while a prosperity-pull is starting to make itself felt.