A demographic approach to firm dynamics: formation of new firms and survival of old ones

This paper introduces a new approach to firm dynamics, named demography of firms. It is the study of demographic events in a population of firms. Thepaper argues that withina demographic approach, attention should be paid to a broad range of firm dynamics, including both new firm formation and survival and employment growth among long-established firms. The paper presents two arguments for this opinion. First, astrong new firm formation is not a generic phenomenon among economic sectors, but seems to be sector-specific. As a consequence, regional variation infirm birth rates is verydependent upon the sectoral composition in regions. Secondly, the employment contribution of newly established firms seems also to be sector-specificand more importantly, rather over-estimated.Within a demographic approach to firm dynamics, this paper will first examine firm birth rates and spatial variation in these rates. Attention will also be given to survival rates and employment effects of new firms. The focus of attention will then shift to the analysis of the survival oflong-established firms, and strategies that enable firms to continue to exist. To this purpose, a specific micro-approach to strategic change will beintroduced, named Company Life-History Analysis. An 'evolutionary' perspective to firm survival will then be linked up with management theory andelements of spatial innovation (diffusion) theory. It will particularly be explored empirically what the support of the local environment may be insuccessful survival strategies of long-established small and medium-sized firms in theNetherlands. The paper will conclude with a number of implications for further research.