Firm exit : an empirical investigation

The research in this dissertation hopes to fill some of the void in the economics literature by investigating firm exit from two perspectives: national and regional. This work consists of two essays on firm exit. The first models the determinants of firm exit in the manufacturing sector of the United States economy opened to international influences. The model is estimated using a two stage block-recursive system. In the first block many of the relationships that exist between profitability, concentration, and advertising are confirmed. The results from the first block are used in the second block where low profitability, declining industry growth, and competition from new entrants play an important role in the exit of firms. The data for this essay were gathered from various U.S. government sources. The second essay examines firm exit in a regional economy, namely Tennessee. Using the causality framework outlined in Granger (1969), the linkages implied by economic base theory (EBT) are investigated. First, the basic assimiption of EBT that basic firm activity causes nonbasic activity is strongly confirmed. Moreover, the causal effects were fotind to occur both instantaneously and with a lag. Second, the implications of traditional EBT are not, however, uniformly supported. It was found that nonbasic activity caused basic activity both instantaneously and with a lag. Finally, the displacement of incumbent firms by new entrants was also tested. Displacement was found to exist. The data for this essay are from records supplied by the Tennessee Department of Employment Security.