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A Study of the impact of slowing industrial growth on firm exit: Evidence from manufacturing industry in Gangwon province

  • Journal of Regional Studies and Development
  • Abbr : JRSD
  • 2018, 27(3), pp.35-71
  • DOI : 10.18350/ipaid.2018.27.3.35
  • Publisher : Institute for Poverty Alleviation and International Development: IPAID
  • Research Area : Social Science > Area Studies > Regional Studies in general > Comparative / Statistical Regional Studies
  • Published : December 30, 2018

Myung-Joong Kwon 1,  Cho Sang Hyuk 1

1연세대학교

Accredited

ABSTRACT

This paper empirically investigates the problem of industry dynamics such as market entry and competition appearing in the period of slowing industrial growth. A empirical model, which is based upon Cox’s proportional hazard function, is devised. Utilizing 5,104 sample of 1,253 manufacturing firms in Gangwon province over the period of 2001 and 2016, the following empirical results are obtained. ① Small scale of firms in the lower 25% of firm scale distribution enter into the market in the slowing growth period, leading to no impact on the exit probability of the incumbents in the industry. ② Unlike the existing empirical results, variables such as market competition and industrial production growth rate, which induce changes in industrial structure, do not make impact on the exit probability but variables such as scale, age, labour productivity and capital intensity, which induce changes in production costs, do make impact upon the exit probability. The exit probability induced by these variable becomes higher the longer is the period of slowing industrial growth. As a result, the firm exit rate increases as compared with the average firm exit rate of the nation. ③ The capital investment for the mature firms in the slowing industrial growth period rather increases the exit probability by 0.07%. ④ Statistical significance of scale, age, labour productivity and capital intensity variables are not different from that of these variable shown in the empirical results of the existing researches. The only difference is that scale and age variables in our research show non-linear relationship with exit probability. The quantitative analysis shows that scale and labour productivity are most effective but capital intensity is least effective in decreasing the exit probability. Our research thus fills the gap in the existing exit literatures and thus widens the scope of exit analysis.

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This paper was written with support from the National Research Foundation of Korea.
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