Research Insights: How Do Aggregate Shocks Impact Firm Entry and Exit, Affecting Macroeconomic Outcomes During Recessions?
Peer Reviewed
Date issued
Dec 2024
Subject
Economic Recession;
Small Business;
Quarantine;
Economic Recovery;
Firms Dynamics;
Productivity;
External Shock;
Rating;
Resilience;
Coronavirus;
Economy;
Labor;
Credit Constraint;
Informal Firm;
Lockdown;
Macroeconomy
JEL code
D21 - Firm Behavior: Theory;
D22 - Firm Behavior: Empirical Analysis;
E24 - Employment • Unemployment • Wages • Intergenerational Income Distribution • Aggregate Human Capital • Aggregate Labor Productivity;
E32 - Business Fluctuations • Cycles
Category
Catalogs and Brochures
Credit shocks and COVID-19 lockdown effects significantly impact firm entry and exit rates, more so than traditional productivity shocks. These shocks lead to substantial reductions in firm entry and increases in exits, concentrated among young and small firms. During the Great Recession, credit constraints particularly affected young firms, reducing their entry and increasing exit rates, which contributed to slower economic recovery by limiting new business formation. Changes in firm entry and exit accounted for 1020% of the decline in output and hours worked during recessions, highlighting the critical role of firm dynamics in shaping macroeconomic outcomes during downturns.
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