Entry, Exit and the Hazards of Firms under Trade Liberalization: Evidence from Eswatini
This work is part of the Private Enterprise Development in Low Income Countries (PEDL) programme
Abstract
The goal of this paper was to estimate an empirical hazard function of firms by determining the impact of selected firm characteristics and unobserved heterogeneity on a firm‟s survival time prior to exit during a period of de factor trade liberalization. Its findings are that: (i) there was significant heterogeneity in entry, exit and survival rates across industries and over time while patterns of co-movement within industries remained. However, exit rates increased rapidly towards the end of the sample period due to high input adjustment frictions and the settlement of market uncertainty, (ii) the probability of survival for incumbent, productive, and lean establishments as well as firms with a larger share of sales was high, ceteris paribus, (iii) in general, the probability of observing firm exit was increasing since the time of last observed exit, after controlling for unobserved heterogeneity; and (iv) the marginal effects of both productivity and firm size on the firm‟s decision to enter a market were significant. Overall, a policy intervention targeting a 10 percent increase in the survival time of firms through innovative retention schemes would significantly increase the rate of market entry, other things equal. This policy would accommodate the potential re-entry of quitting plants and also enhance the probability of one-time large firm entry. A few producer-level choices may include; inter alia, improvements in managerial quality, relaxation of financial constraints, and effective adoption of new production technologies as well as information and communication technology.
This work is part of the Private Enterprise Development in Low Income Countries (PEDL) programme
Citation
Mhlanga, S. “Entry, Exit and the Hazards of Firms under Trade Liberalization: Evidence from Eswatini” Working Paper
Link
Entry, Exit and the Hazards of Firms under Trade Liberalization: Evidence from Eswatini