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The primary purpose of this paper is to present stylized facts and provide descriptive analysis of the entry and exit patterns in the Canadian economy in order to form a solid foundation for future in-depth theoretical and empirical studies of firm dynamics.

Despite a sizeable theoretical literature, the scarcity of firm-level data has restricted empirical analyses of firm dynamics. Since the late 1980s, development of longitudinal micro databases has spurred research around the world, but limitations in the scope and quality of available datasets meant that studies were restricted to specific industries, often manufacturing or retail, or to simple cross-country comparisons.

However, unique features of the Longitudinal Employment Analysis Program (LEAP) database developed by Statistics Canada make it possible to derive statistics on firm dynamics for all business sector industries. In addition, a labour-tracking feature in the LEAP dataset allows for merger and acquisition activity to be traced through time, thereby producing more 'organic' rates of entry and exit.

This paper focuses on the following aspects of entry and exit: the relative importance of entrants and exiters in terms of both number of firms and employment, the persistence of industry entry and exit patterns over time, and the correlation between industry entry and exit.

The general findings that emerge are the following:

1. There is consistently more entry than exit, not only at the aggregate level, but also at levels disaggregated by industry and by size. This indicates a widespread vitality and growth in the Canadian economy from the perspective of firm entry and exit.
2. The intensity of entry and exit measured by the share of number firms remains stable over time at the aggregate level and also in the majority of industries.
3. The effectiveness of entry and exit measured by employment share decreases over time at the aggregate level and in most industries.
4. Entrants and exiters are highly concentrated in small-sized firms and small firms are more likely to be experimenting with entry and exit. This tendency has been increasing since 2000, suggesting that the average size of entrants and exiters has fallen over the period.
5. Entry and exit rates are negatively correlated over time at the aggregate level; however, at the industry level, these correlations become positive in many industries—including manufacturing and wholesale trade. This implies that time-varying factors affect entry and exit the same way in some industries, but in opposite directions in other industries.
6. Entry and exit rates differ largely across industries and persist over time, suggesting that industries with higher than average entry (exit) in any one year will tend to have higher than average entry (exit) in other years.
7. Industry entry and exit are highly and positively correlated, implying that relatively high or low entry and exit rates occur simultaneously in the same industry.
8. After correction for industry fixed effects, the correlations between industry entry and exit rates are no longer consistent. They are positive in some years and negative in some other years, implying that the impact of time-varying factors is not consistent over time.