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This paper investigates the connection between firm entry and exit and labour productivity growth. The paper has its theoretical foundations in modern Schumpeterian growth theory, distance to frontier model and vintage capital models. The importance of productivity enhancing restructuring has been increasingly acknowledged and all these theories depict the productivity enhancing effects that external restructuring - in particular firm entry and exit - may have. Despite the vast theoretical discussion there is only a little empirical research on the subject. Thus, this paper aims at contributing to the existing empirical literature by utilizing panel data that contain information on all manufacturing subsectors from eight EU member states between 1997 and 2004. Empirical analysis is conducted with fixed effects panel regression.
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