CEPAL Review no. 124

CEPAL Review N° 124 • April 2018 125
door” phenomenon may be more intense than is typically observed in developed countries. 6 In addition,
after an economic crisis, existing firms that exploit their idle capacity may have greater aggregate
effects on the satisfaction of demand for new goods than new firms (Calá, Manjón-Antolín and
Arauzo-Carod, 2016).
Moreover, macroeconomic volatility may mitigate the effect of variables such as the unemployment
rate or the industrial tradition. Long-term unemployed individuals may not have the ability, financial
resources and/or social capital needed to start a new business (Fritsch and Falck, 2007). However,
changes in the conditions that determine profitability (exchange rate, tariffs, credit access or tax policy)
and the lack of continuity in industrial policies may reduce the effect of past (dynamic) localization
economies on current entry and exit (Calá, Manjón-Antolín and Arauzo-Carod, 2016).
A less developed industrial structure and less saturated markets may affect the relationship
between entries and exits. For example, evidence rejecting the replacement effect has been found
for Turkey and Taiwan (Günalp and Cilasun, 2006; Lay, 2003). Moreover, exits may actually reflect
negative expectations for the evolution of economic activity, deterring entry (Calá, Manjón-Antolín and
Arauzo-Carod, 2016). Similarly, agglomeration does not always have a positive association with start-up
rates since increased competition and higher barriers to entry may act as disincentives for entrepreneurial
activity in core regions (Naudé and others, 2008).
Further, developing countries usually have large informal sectors (Schneider, 2005). At the regional
level, the relationship between the size of the shadow economy and the entry rate may be either positive
or negative. It will be positive if subcontracting activities create complementarities or if the informal
sector encourages entry by acting as a stepping stone (Bennett, 2010) for entrepreneurs to “test the
waters” before deciding whether or not to enter the formal sector. In addition, informality may encourage
start-ups as the instability and insecurity typical of informal jobs push people towards entrepreneurship.
However, a negative association is likely if informal companies compete with formal firms on the basis
of lower prices and non-differentiated goods. With regard to exits, a positive relationship may arise if
formal firms compete for the same resources as informal firms and/or they become informal when in
difficulty. Conversely, a negative association can be expected if formal firms buy inputs from the informal
sector, thus lowering costs and/or increasing flexibility.
Another distinctive characteristic of developing economies is the high level of poverty and income
disparity, both among individuals and regions. This may hamper the emergence of new (formal) ventures,
since the demand for goods and services is smaller, less stable and less diverse. Poverty also affects
the supply of entrepreneurs, since the share of people with access to information, business networks
and financial resources is limited (Kantis, Angelelli and Moori Koening, 2005).
Lastly, developing countries show marked regional differences in critical economic indicators, with
some areas boasting levels of capitalization, technology, productivity and human capital requirements
similar to their counterparts in advanced countries (Sunkel, 1978). A direct implication of this “structural
heterogeneity” (Cassiolato, Pagola and Lastres, 2009) is that firm entry/exit determinants may differ across
the regions of a country. For example, peripheral areas usually lack the critical mass of related firms to
create the conditions for external economies in some sectors. As a result, positive agglomeration effects
are expected to arise only in central areas. Previous studies on aggregated entry and exit in Argentina
have found that the spatial distribution of aggregated entries and exits exhibit a core-periphery pattern
(Calá, Arauzo-Carod and Manjón-Antolín, 2015 and 2016).
6
However, this may not occur if less competition and greater monopoly power were to weaken turnover rates and slow down
the creative destruction process.
Carla Daniela Calá