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Study: Business entry and exit rates in Canada: A 30-year perspective

Press Release –

The rate at which businesses both entered and exited industry in Canada fell between 1983/1984 and 2011/2012, according to a new study. The entry rate, the number of entrants divided by the population of all active firms, declined over the study period, falling from 24.5% to 13.1%. The exit rate, the number of firms leaving an industry relative to the sector’s total population, also declined, falling from 16.5% to 11.6%.

The study focused on firm entry and exit rates, which illustrate one aspect of the dynamism that is essential to a well-functioning economy. The entry of new firms is a source of productivity growth and technology adoption, while exits remove less productive firms. Other measures of dynamism, such as employment re-allocation, were not examined. As a result, even though entry and exit rates in Canada declined over the last three decades, this does not suggest that Canada’s economy has become less dynamic overall.

The study, based on a new set of experimental, linked data, revealed that the largest differences between entry and exit rates occurred in the 1980s, when entry rates declined but exit rates increased. The entry rate declined by 5.7 percentage points between 1983/1984 and 1990/1991, while the exit rate increased by 2.6 percentage points. Over subsequent decades, both entry and exit rates declined.

By 1995/1996, a more stable difference between entry and exit rates had been established. The difference averaged 1.98 percentage points between 1996/1997 and the end of the study period in 2011/2012.

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