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Firm Entry and Exit and Aggregate Growth

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  • Jose Asturias
  • Sewon Hur
  • Timothy J. Kehoe
  • Kim J. Ruhl

Abstract

Using data from Chile and Korea, we find that a larger fraction of aggregate productivity growth is due to firm entry and exit during fast-growth episodes compared to slow-growth episodes. Studies of other countries confirm this empirical relationship. We develop a model of endogenous firm entry and exit based on Hopenhayn (1992). Firms enter with efficiencies drawn from a distribution whose mean grows over time. After entering, a firm?s efficiency grows with age. In the calibrated model, reducing entry costs or barriers to technology adoption generates the pattern we document in the data. Firm turnover is crucial for rapid productivity growth.

Suggested Citation

  • Jose Asturias & Sewon Hur & Timothy J. Kehoe & Kim J. Ruhl, 2017. "Firm Entry and Exit and Aggregate Growth," Staff Report 544, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmsr:544
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    More about this item

    Keywords

    Exit; Entry; Entry barriers; Barriers to technology adoption; Productivity;
    All these keywords.

    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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