Long run relationship between entry and exit: time series evidence from Turkish manufacturing industry

Abstract

This paper investigates the long run relationship between entry and exit using aggregate annual data from the Turkish manufacturing industry for the period 1968-2001. The time series properties of the data imply that simple OLS regressions may yield spurious results. We employ both bivariate and multivariate models to test for Granger causality. Utilizing relatively new time series techniques, we find that exit Granger causes entry in the long run, but not vice versa. However, unlike many empirical findings in the literature, past exit has a negative effect on entry. Entrants seem to be put off by past exit in the long run. Hence, our results do not seem to support the replacement effect in the Turkish manufacturing industry in general. None of the other variables included in the multivariate analysis has significant effects on entry or exit. The generalized impulse responses between entry and exit confirm Granger causality results.