According to EU SME Report, on an average 1.8 million new enterprises are established annually, which corresponds to 9.7 % of the total enterprise population. But simultaneously, 1.5 million enterprises annually are closed, corresponding to a death rate of 8.3 % of the total enterprises. Of the total increase, the SMEs increased by 2.4 million or by 13%, while the number of large enterprises increased by 2000 (5%).
There are two factors which determine the increase in new enterprises: net entry development and casual relation between entry and exit.
Firstly, the positive entry rates in EU-27 may be attributed to growth of services sector, cultural drift, deregulation, adoption of new technologies. Specifically in EU-12 the high entry rates are due to emergence of new markets and more flexible labor regulation. Apart from this profitability and unemployment rates of private sector also has impact on entry rate.
Secondly, it is casuality between entry and exit, that is, it is phenomenon of replacement and displacement. In case of displacement, entry causing exit, improves competition and better performance of already existing enterprises. In case of replacement, new firms are added due to exit of already existing firms.
To calculate the entry and exit rates more sophisticated econometric models are required.