Determinants of Firm Entry and Exit in Canada and the U.S.

Abstract

This paper aims to better understand the entry and exit of firms. Empirical studies examining the effects of macroeconomic variables- unemployment rate, real GDP, interest rate, and economic growth rate- on firm dynamics are reviewed. Two countries, Canada and the U.S., and five industries in each country are separately analyzed. The major underlying idea of this paper is that firm dynamics are closely related to labour economics, economic policies and regulations, and various economic shocks. The results indicate that all four macroeconomic variables significantly affect entry and exit. U.S. firms show more sensitivity to the unemployment and economic growth while Canadian firms are more sensitive to real GDP and the interest rate.