Creative Destruction and Regional Competitiveness

Date Added: Dec 2006
Format: PDF

New firms stimulate competitiveness via market selection and competitive pressures, by forcing less efficient incumbents to exit or to improve their productivity. This way, both the creation and destruction of firms (turbulence) may improve competitiveness. In this paper the effect of turbulence on regional competitiveness (measured as total factor productivity and employment growth) is analyzed in 40 regions in the Netherlands over the period 1988-2002. The author's analyses suggest that turbulence leads to productivity growth in services but not so in manufacturing. Employment growth appears to benefit from firm dynamics in manufacturing.