Technology Level and Exit Probability of New Firms in Manufacturing Industries of Iran Using Cox Hazard Model

Entrance of new firms in the industry, according to existing theories, prepares the ground for competition, evolution, growth and innovation that can potentially lead to growth and economic development. This will come true only if the new firms have the ability to survive in economic activity for a reasonable time and are not forced out of the industry in the early years of their entrance. Several reasons have been studied for the exit of industrial firms in the literature of industrial economics. It is believed that the level of industrial technology used by the firm at the early stage of its activities is the main and effective factor that determines the exit time of the firm. This paper is aiming at examining the effects of technology level on exit probability of the new firms in industrial economy of Iran during the years 2001 to 2005. Data of manufacturing firms is extracted from the censuses conducted by the Statistical Center of Iran and the technology level is determined according to OECD classification. Cox hazard model is used in this study to determine the exit probability. The results of this study show that the technology level of industry has had a meaningfully negative impact on the exit probability of new firms. In other words, the firms entering the industry with medium-and high-technology level have a lower probability of exit.