Firm size and short-term dynamics in aggregate entry and exit

The interdependence between the sectorial rates of entry and exit is an established "stylised fact" in the research on industry dynamics. This paper argues that the size of firms and the reaction-adjustment period are important conditions that are missing from the empirical models typically used in this literature. I illustrate the effects of this omission on a panel of Spanish manufacturing industries. Estimates from error-component systems of equations provide evidence of a conical revolving door phenomenon and of dynamic partial adjustments in the replacement-displacement of firms. (C) 2009 Elsevier B.V. All rights reserved.