Entry and Exit of Firms in the First Phase of Regional Revitalization: Revolving door economy and creative destruction

Author Name NAKAMURA Ryohei (Faculty Fellow, RIETI)
Creation Date/NO. August 2023 23-P-014
Research Project Verification of regional revitalization and regional and urban economies after the Coronavirus Pandemic
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The growth of regional economies requires an economic metabolism in which high-productivity firms newly enter the market, while low-productivity firms exit the market, resulting in a shift in labor and other production factors. A "revolving door" economy is an economy in which firms that enter the market exist only for a short time, withdraw and enter the market repeatedly, and new entrants do not contribute to productivity improvement. This means that if new entrants are not sufficiently innovative compared to incumbents, even if the rate of entry into business rises, they will simply be replaced by companies whose productivity level is not significantly higher, and this will not lead to job creation or improved productivity. A contrasting concept is the replacement of companies by Schumpeter's “creative destruction.” The high level of technology and productivity of new firms entering the market drives inefficient incumbents out of the market. Looking at the statistics, there is a tendency for large cities to have both higher business entry and exit rates, but the difference between the entry and exit rates is greater in metropolitan areas. Although it depends on the regional characteristics, location competitiveness is generally higher in metropolitan areas, and there is a tendency for the turnover rate to be comparatively higher or the survival period to be shorter. Before and after regional revitalization, we will examine whether or not there is a departure from the revolving door economy by industry and region, using economic census and TSR (Tokyo Shoko Research) data.