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BOK Working Paper No.2017-5, Analysis on the Determinants of Exit of Self-Employed Businesses in Korea

Economic Research Institute (+82-2-759-5634) 2017.01.30 6832

Title : Analysis on the Determinants of Exit of Self-Employed Businesses in Korea

Authors : Yunmi Nam(BOK)


The proportion of self-employed and unpaid family workers in Korea is 25.9% as of 2015, which is in a decreasing trend but still very high compared to other OECD countries. In addition, there exist a lot of concerns over a high shutdown rate of self-employed businesses while only a few studies have dealt with their survival. Therefore, we empirically analyze the determinants of exit of self-employed businesses in Korea, using panel data on wholesale & retail trade, restaurant & lodging, repair and other individual service industries from “Census on Establishments” provided by the Statistics Korea. With Cox’s proportional hazards model, we estimate the effects of various demand, cost, and competition factors on the exit rate of businesses in major industries of self-employment. According to estimation results, cost factors : rents, lending interest rates, and fixed personnel expenses as well as demand factors: consumer price index (CPI) and gross regional domestic product (GRDP) have considerable effects on the shutdown rate of self-employed businesses. The number of competitors and business-specific characteristics such as the age and size of business are also estimated to have significant effect.

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