Economic growth in Sweden, 2000-2010 : The dot-com bubble and the financial crisis

    Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. The total output is the quantity of goods or servicesproduced in a given time period within a country. Sweden was affected by two crises during the period 2000-2010: a dot-com bubble and a financial crisis. How did these two crises affect the economic growth?     The changes of domestic output can be separated into four parts: changes in intermediate demand, final domestic demand, export demand and import substitution. The main purpose of this article is to analyze the economic growth during the period 2000-2010, with focus on the dot-com bubble in the beginning of the period 2000-2005, and the financial crisis at the end of the period 2005-2010. The methodology to be used is the structural decomposition method.     This investigation shows that the main contributions to the Swedish total domestic output increase in both the period 2000-2005 and the period 2005-2010 were the effect of domestic demand. In the period 2005-2010, financial crisis weakened the effect of export. The output of the primary sector went from a negative change into a positive, explained mainly by strong export expansion. In the secondary sector, export had most effect in the period 2000-2005. Nevertheless, domestic demand and import ratio had more effect during the financial crisis period. Lastly, in the tertiary sector, domestic demand can mainly explain the output growth in the whole period 2000-2010.

Entry, re-location and growth in the Swedish wholesale trade industry

Wholesale trade has an intermediate position between manufacturing and retail in the distributional channel. In modern economies, consumers buy few, if any, products directly from manufacture or producer. Instead, it is a wholesaler, who is in direct contact with producers, buying goods in larger quantities and selling them in smaller quantities to retailers. Traditionally, the main function of a wholesaler has been to push goods along the distributional channel from producer to retailer, or other nonend user. However, the function of wholesalers usually goes beyond the process of the physical distribution of goods. Wholesalers also arrange storage, perform market analyses, promote trade or provide technical support to consumers (Riemers 1998). The existence of wholesalers (and other intermediaries) in the distributional channel is based on the effective and efficient performance of distribution services, that are needed by producers and other members of the supply chain. Producers usually do not enjoy the economies of scale that they have in production, when it comes to providing distributional services (Rosenbloom 2007) and this creates a space for wholesalers or other intermediaries. Even though recent developments in the distributional channel indicate that traditional wholesaling activities now also compete with other supply chain organizations, wholesaling still remains an important activity in many economies (Quinn and Sparks, 2007). In 2010, the Swedish wholesale trade sector consisted of approximately 46.000 firms and generated an annual turnover of 1 300 billion SEK (Företagsstatistiken, Statistics Sweden). In terms of turnover, wholesaling accounts for 20% of the gross domestic product and is thereby the third largest industry. This is behind manufacturing and a composite group of firms in other sectors of the service industry but ahead of retailing. This indicates that the wholesale trade sector is an important part of the Swedish economy. The position of wholesaling is further reinforced when measuring productivity growth. Measured in terms of value added per employee, wholesaling experienced the largest productivity growth of all industries in the Swedish economy during the years 2000 through 2010. The fact that wholesale trade is one of the important parts of a modern economy, and the positive development of the Swedish wholesale trade sector in recent decades, leads to several questions related to industry dynamics. The three topics that will be examined in this thesis are firm entry, firm relocation and firm growth. The main question to be answered by this thesis is what factors influence new firm formation, firm relocation and firm growth in the Swedish wholesale trade sector?

Essays on firm dynamics in the Swedish wholesale trade sector

This thesis consists of a summary and five self-contained papers addressing dynamics of firms in the Swedish wholesale trade sector. Paper [1] focuses upon determinants of new firm formation in the Swedish wholesale trade sector, using two definitions of firms’ relevant markets, markets defined as administrative areas, and markets based on a cost minimizing behavior of retailers. The paper shows that new entering firms tend to avoid regions with already high concentration of other firms in the same branch of wholesaling, while right-of-the-center local government and quality of the infrastructure have positive impacts upon entry of new firms. The signs of the estimated coefficients remain the same regardless which definition of relevant market is used, while the size of the coefficients is generally higher once relevant markets delineated on the cost-minimizing assumption of retailers are used. Paper [2] analyses determinant of firm relocation, distinguishing between the role of the factors in in-migration municipalities and out-migration municipalities. The results of the analysis indicate that firm-specific factors, such as profits, age and size of the firm are negatively related to the firm’s decision to relocate. Furthermore, firms seems to be avoiding municipalities with already high concentration of firms operating in the same industrial branch of wholesaling and also to be more reluctant to leave municipalities governed by right-of-the- center parties. Lastly, firms seem to avoid moving to municipalities characterized with high population density. Paper [3] addresses determinants of firm growth, adopting OLS and a quantile regression technique. The results of this paper indicate that very little of the firm growth can be explained by the firm-, industry- and region-specific factors, controlled for in the estimated models. Instead, the firm growth seems to be driven by internal characteristics of firms, factors difficult to capture in conventional statistics. This result supports Penrose’s (1959) suggestion that internal resources such as firm culture, brand loyalty, entrepreneurial skills, and so on, are important determinants of firm growth rates. Paper [4] formulates a forecasting model for firm entry into local markets and tests this model using data from the Swedish wholesale industry. The empirical analysis is based on directly estimating the profit function of wholesale firms and identification of low- and high-return local markets. The results indicate that 19 of 30 estimated models have more net entry in high-return municipalities, but the estimated parameters is only statistically significant at conventional level in one of our estimated models, and then with unexpected negative sign. Paper [5] studies effects of firm relocation on firm profits of relocating firms, employing a difference-in-difference propensity score matching. Using propensity score matching, the pre-relocalization differences between relocating and non-relocating firms are balanced, while the difference-in-difference estimator controls for all time-invariant unobserved heterogeneity among firms. The results suggest that firms that relocate increase their profits significantly, in comparison to what the profits would be had the firms not relocated. This effect is estimated to vary between 3 to 11 percentage points, depending on the length of the analyzed period.