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Entry costs, industry structure, and cross-country income and TFP differences

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  • Barseghyan, Levon
  • DiCecio, Riccardo

Abstract

Entry costs vary dramatically across countries. To assess their impact on cross-country differences in output and TFP, we construct a model with endogenous entry and operation decisions by firms. We calibrate the model to match the U.S. distribution of employment and firms by size. Higher entry costs lead to greater misallocation of productive factors and lower TFP and output. In the model, countries in the lowest decile of the entry costs distribution have 1.32 to 1.45 times higher TFP and 1.52 to 1.75 times higher output per worker than countries in the highest decile. As in the data, higher entry costs are associated with lower entry rates and business density.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 146 (2011)
Issue (Month): 5 (September)
Pages: 1828-1851

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Handle: RePEc:eee:jetheo:v:146:y:2011:i:5:p:1828-1851

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Web page: http://www.elsevier.com/locate/inca/622869

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Keywords: Entry costs TFP Industry structure;

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References

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  1. Simeon Djankov & Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 2002. "The Regulation Of Entry," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 1-37, February.
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  3. Restuccia, Diego & Urrutia, Carlos, 2001. "Relative prices and investment rates," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 93-121, February.
  4. Levon Barseghyan, 2008. "Entry costs and cross-country differences in productivity and output," Journal of Economic Growth, Springer, vol. 13(2), pages 145-167, June.
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  16. Adelina Gschwandtner & Val E. Lambson, 2006. "Sunk Costs, Profit Variability, and Turnover," Economic Inquiry, Western Economic Association International, vol. 44(2), pages 367-373, April.
  17. Levon Barseghyan & Riccardo DiCecio, 2008. "Endogenous productivity and multiple steady states," Working Papers 2008-023, Federal Reserve Bank of St. Louis.
  18. Aguirregabiria, Victor & Ho, Chun-Yu, 2009. "A Dynamic Oligopoly Game of the US Airline Industry: Estimation and Policy Experiments," MPRA Paper 16739, University Library of Munich, Germany.
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Citations

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Cited by:
  1. Dhritman Bhattacharya & Nezih Guner & Gustavo Ventura, 2013. "Distortions, Endogenous Managerial Skills and Productivity Differences," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 11-25, January.
  2. Janiak, Alexandre, 2013. "Structural unemployment and the costs of firm entry and exit," Labour Economics, Elsevier, vol. 23(C), pages 1-19.
  3. Hernan Moscoso Boedo & Toshihiko Mukoyama, 2012. "Evaluating the effects of entry regulations and firing costs on international income differences," Journal of Economic Growth, Springer, vol. 17(2), pages 143-170, June.
  4. Vivien Lewis, 2009. "Optimal monetary policy and firm entry," Working Paper Research 178, National Bank of Belgium.
  5. Cacciatore, Matteo & Fiori, Giuseppe & Ghironi, Fabio, 2013. "Market Deregulation and Optimal Monetary Policy in a Monetary Union," CEPR Discussion Papers 9742, C.E.P.R. Discussion Papers.
  6. Diego Restuccia & Richard Rogerson, 2012. "Misallocation and Productivity," Working Papers tecipa-468, University of Toronto, Department of Economics.
  7. Ashantha Ranasinghe, 2012. "Property Rights, Extortion and the Misallocation of Talent," 2012 Meeting Papers 293, Society for Economic Dynamics.
  8. Paul Bergin & Ling Feng & Ching-Yi Lin, 2014. "Financial Frictions and Firm Dynamics," NBER Working Papers 20099, National Bureau of Economic Research, Inc.
  9. V. Lewis, 2010. "Product Diversity, Strategic Interactions and Optimal Taxation," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 10/661, Ghent University, Faculty of Economics and Business Administration.
  10. Diego Restuccia, 2013. "The Latin American Development Problem: An Interpretation," JOURNAL OF LACEA ECONOMIA, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
  11. Latchezar Popov & Toshihiko Mukoyama, 2013. "The Political Economy of Entry Barriers," 2013 Meeting Papers 1288, Society for Economic Dynamics.

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