Katholieke Universiteit Leuven, LICOS Centre for Institutions and Economic Performance, Leuven
This paper studies the link between the demographic structure of populations and firm entry rates in the European Union. We find that firm entry rates have a hump-shaped relationship with human demography, with the 40-54 age group having the strongest positive impact on firm entry. Potential mechanisms through which this relationship may arise include labour market participation, demand and access to entrepreneurship (linked with experience and access to finance). Perhaps more surprisingly, firm entry again picks up with generations aged 80 and over expanding. This could relate to the fact that a larger 80+ age cohort reflects greater longevity, which in turn increases savings, reduces interest rates and therefore increases availability of external financing. When controlling for life expectancy and interest rates, the coefficient corresponding to the 80+ age cohort sharply declines and becomes insignificant. Based on the results of the analysis, we assess the implications of our results for firm entry rates by 2025 and 2030, using UN population projections.