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Entry costs, misallocation, and cross-country income and TFP differences

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  • Levon Barseghyan
  • Riccardo DiCecio

Abstract

Entry costs vary dramatically across countries. To assess their impact we construct a model with endogenous entry and operation decisions by firms and calibrate it to match the U.S. distribution of firms by age and size. Higher entry costs lead to greater misallocation of productive factors and lower TFP and output. In the model, countries with entry costs in the lowest decile of the distribution have 2.32 times higher TFP (3.43 in the data) than countries in the highest decile. As in the data, higher entry costs are associated with higher mean and variance of the employment distribution across firms.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2009-005.

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Date of creation: 2009
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Handle: RePEc:fip:fedlwp:2009-005

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Keywords: Industrial productivity ; Economic development;

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Citations

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Cited by:
  1. D'Erasmo, Pablo N. & Moscoso Boedo, Hernan J., 2012. "Financial structure, informality and development," Journal of Monetary Economics, Elsevier, vol. 59(3), pages 286-302.
  2. Michael Peters, 2010. "Mark-Up Distortions and Endogenous Misallocation," 2010 Meeting Papers 431, Society for Economic Dynamics.
  3. Riccardo DiCecio & Levon Barseghyan, 2010. "Entry Costs, Industry Structure, and Cross-Country Income and TFP Differences," 2010 Meeting Papers 964, Society for Economic Dynamics.
  4. Raphael Bergoeing & Norman V. Loayza & Facundo Piguillem, 2011. "The Aggregate and Complementary Impact of Micro Distortions," Working Papers wp338, University of Chile, Department of Economics.
  5. Michael Peters, 2011. "Heterogeneous Mark-Ups and Endogenous Misallocation," 2011 Meeting Papers 78, Society for Economic Dynamics.
  6. Lei Fang, 2010. "Entry cost, financial friction, and cross-country differences in income and TFP," Working Paper 2010-16, Federal Reserve Bank of Atlanta.
  7. Hernan J Moscoso Boedo & Asli Senkal & Pablo D'Erasmo, 2011. "Misallocation, Informality and Human Capital," 2011 Meeting Papers 881, Society for Economic Dynamics.
  8. Alexandre Janiak, 2010. "Structural unemployment and the regulation of product market," Documentos de Trabajo 274, Centro de Economía Aplicada, Universidad de Chile.

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