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Entry barriers, competition, and technology adoption

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  • Lei Fang
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Abstract

There are large differences in income per capita across countries. Growth accounting finds that a large part of the differences comes from the differences in total factor productivity (TFP). This paper explores whether barrier to entry is an important factor for the cross-country differences in TFP. The paper develops a new model to link entry barriers and technology adoption. In the model, higher barriers to entry effectively reduce entry threat, and lower entry threat leads to adoption of less productive technologies. The paper demonstrates that technology adopted in the economy with entry threats is at least as good as the technology adopted in the economy without entry threats. Moreover, the paper presents numerical simulations that suggest entry barriers could be a quantitatively important reason for cross-country differences in TFP and are more harmful to productivity in the countries with monopolists facing inelastic demand.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 2009-08.

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Date of creation: 2009
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Handle: RePEc:fip:fedawp:2009-08

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Keywords: Productivity;

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References

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  1. Giuseppe Nicoletti & Stefano Scarpetta, 2003. "Regulation, productivity and growth: OECD evidence," Economic Policy, CEPR & CES & MSH, vol. 18(36), pages 9-72, 04.
  2. Giorgio Bellettini & Gianmarco I. P. Ottaviano, 2005. "Special Interests and Technological Change," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 43-56.
  3. Berthold Herrendorf & Arilton Teixeira, . "Barriers to Entry and Development," Working Papers 2167726, Department of Economics, W. P. Carey School of Business, Arizona State University.
  4. Berthold Herrendorf & Arilton Teixeira, . "How Barriers to International Trade Affect TFP," Working Papers 2167724, Department of Economics, W. P. Carey School of Business, Arizona State University.
  5. Klaus Desmet & Stephen L. Parente, 2008. "Bigger is better: Market size, demand elasticity and innovation," Working Papers 2008-10, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
  6. Peter Klenow & Andrés Rodríguez-Clare, 1997. "The Neoclassical Revival in Growth Economics: Has It Gone Too Far?," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 73-114 National Bureau of Economic Research, Inc.
  7. Thomas J. Holmes & David K. Levine & James A. Schmitz, Jr., 2008. "Monopoly and the Incentive to Innovate When Adoption Involves Switchover Disruptions," NBER Working Papers 13864, National Bureau of Economic Research, Inc.
  8. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, vol. 103(3), pages 441-63, August.
  9. Ananth Seshadri & Rodolfo Manuelli, 2005. "Human Capital and the Wealth of Nations," 2005 Meeting Papers 56, Society for Economic Dynamics.
  10. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
  11. Giuseppe Nicoletti & Stefano Scarpetta, 2005. "Regulation and Economic Performance: Product Market Reforms and Productivity in the OECD," OECD Economics Department Working Papers 460, OECD Publishing.
  12. Holmes, Thomas J. & Jr., James A. Schmitz, 2001. "A gain from trade: From unproductive to productive entrepreneurship," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 417-446, April.
  13. Parente, Stephen L & Prescott, Edward C, 1994. "Barriers to Technology Adoption and Development," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 298-321, April.
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Cited by:
  1. Diagne, Youssoupha S, 2013. "Impact of business environment on investment and output of manufacturing firms in Senegal," MPRA Paper 54227, University Library of Munich, Germany.
  2. El-hadj Bah & Lei Fang, 2011. "Impact of the business environment on output and productivity in Africa," Working Paper 2011-14, Federal Reserve Bank of Atlanta.

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