employees): during the centrally planned system there were relatively few of these micro firms which however exploded during the transition in most of business service activities.

Turnover rates vary significantly across sectors in each country. Table 5 presents the sectoral gross turnover rates (entry plus exit rates weighted by employment) normalized by the overall cross-country average. As before, if technological factors were predominant in determining the heterogeneity of firm dynamics across countries, we should find that the values in the country columns of Table 5 are concentrated around one. The first element to report is that the variability of turnover rates for the same industry across countries is comparable in magnitude to that _across industry_ in each country.<sup>15</sup> Turnover rates (especially if weighted by employment) are somewhat higher in the service sector (especially in trade) than in manufacturing.<sup>16</sup> However, in most countries, some high-tech industries with rapid technological changes and market experimentation had relatively high entry rates in the 1990s (e.g. _office, computing and equipments_ and _radio, TV and communication_ ). Transition, but also emerging economies in Latin America tend to have greater firm churning than in the industrial countries, on average. This result is dominated by some sector dominated by few firms (e.g. _fuel and petroleum)_ as well as some traditional activity (e.g. _construction_ ) but also some high-tech industry exposed to intense competition and FDI (e.g. _radio, TV and communication_ ).

It is also interesting to compare entry and exit rates across sectors to test two competing theories: one hypothesis is that entry and exit rates at the sectoral level are mostly driven by sectoral shocks. Sectors with positive profit shocks will have high entry and sectors with negative profit shocks will have high exit. If sectoral profit shocks are the predominant source of variation, then the cross-sectional correlation between entry and exit rates should be negative. Alternatively, entry and exit rates at the sectoral level might be driven by the within sector creative destruction process. A sector with a high dispersion of idiosyncratic shocks and/or low barriers to entry and exit will exhibit both high entry and high exit rates. If the creative destruction process is the predominant factor driving entry and exit, then the cross-sectional correlation of entry and exit should be positive.

In most of the industrial countries annual entry and exit rates are generally positively correlated across industries (Table 6), confirming previous evidence ( _e.g._ Geroski, 1991 _a_ ; Baldwin and Gorecki, 1991). And the correlations are particularly strong when the entry and exit rates are weighted by employment. The table also presents the correlations between the average entry and exit rates over the 1990s which account for the possibility that industry changes in entry and exit do not occur in the same year. Indeed, the correlations based on the average over the 15. Two sectors stand out as clear outliers _: agriculture_ , where some countries have very high turnover rates in absolute and relative terms; and _electricity, gas and water,_ where turnover is very low in some countries. This latter result is perhaps not surprising given that this industry is often dominated by public utilities.

- 16 . In Italy and especially Finland, however, there appears to be only small differences in churning between manufacturing and services. In the case of Italy this is particularly evident for the employment-weighted turnover and likely reflects the small differences in average size of firms between manufacturing and services. For Finland, the high turnover in manufacturing is likely the result of major restructuring, which took place in the aftermath of the deep recession of the early 1990s. The lower turnover rate in the French service sector compared with that in manufacturing is likely to depend on the existence of a size threshold in the French data, which tends to be more binding in the service sector than in manufacturing. As an indication, the French data also suggest a higher average size of firms in the service sector than in manufacturing, in contrast with all other countries.

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