Barriers to Firm Growth in Open Economies
AbstractStudies measuring barriers to firm growth assume economies are closed, ignoring information on firm exports. We argue that this information is key to interpret data and improve the accuracy of model predictions. To show this, we develop a dynamic model with export and domestic barriers. We show theoretically that the closed economy model under-estimates barriers and amplifies counterfactuals. By calibrating the model to a set of European countries, we find that quantitatively this matters: for example, the closed economy fails to see that Italian firms are very efficient exporters but lousy innovators, and instead conclude that they are mediocre innovators. In terms of predictions, the closed economy model delivers an elasticity of welfare to innovation costs between 31 and 64 percent larger than the open economy model.
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Bibliographic InfoPaper provided by Instituto de Economia. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 443.
Date of creation: 2013
Date of revision:
Other versions of this item:
- F1 - International Economics - - Trade
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- O3 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights
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