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ABSTRACT: Firm Exits as a Determinant of New Entry:
Is There Evidence of Local Creative Destruction?

Aviad Pe'er, Tuck School of Business at Dartmouth
Ilan Vertinsky, Sauder School of Business, The University of British Columbia

October 2006

This study posits that a local process of creative destruction provides an impetus to regional industrial renewal. We argue that exits of older firms release resources thus enhancing the opportunity landscape facing entrepreneurs and stimulating local entry. We test our hypotheses using a unique longitudinal database encompassing the entry and exit of Canadian manufacturing enterprises. We find that exits of old firms increase entry and that on average new entrants are more productive. Persistent high local rates of exit, however, deter entry.

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