Munich Personal RePEc Archive

Turbulence in startups: Effect of COVID-19 lockdown on creation of new firms and its capital

Camino-Mogro, Segundo (2020): Turbulence in startups: Effect of COVID-19 lockdown on creation of new firms and its capital.

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Abstract

Business creation is an important measure of real economic activity because it shows the dynamics with which new firms are born, create jobs, move their capital, innovate and compete with old firms. In this sense, this paper analyzes the impact of the lockdown policies implemented to stop the spread of the COVID-19 on the creation of new formal firms in Ecuador. I use a regression discontinuity in time (RDiT) design jointly with official administrative real-time data, and find an overall large decrease in the creation of new formal firms (-73%) but also in the total amount of capital coming from the new formal firms (-40%). Additionally, my results suggest that the negative impacts of the COVID-19 lockdown on creation of new formal firms do not diminish over the time, in particular after one month and a half. Finally, I show that the March 16 lockdown measures help to explain only the observed changes in creation of new formal firms occurred the day after their announcement and not other changes that predate or follow these announcements. The main conclusion is that lockdown policies have a negative impact on firm creation, result that is of high policy relevance which can be a tool to design business attraction policies.

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