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Entry Costs, Industry Structure, and Cross-Country Income and TFP Differences

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  • Riccardo DiCecio

    (FRB of St. Louis)

  • Levon Barseghyan

    (Cornell University)

Abstract

Entry costs vary dramatically across countries. To assess their impact we construct a model with endogenous entry and operation decisions by rms and calibrate it to match the U.S. distribution of 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 1.35 to 1.50 times higher TFP and 1.57 to 1.82 times higher output per worker than countries in the highest decile. As in the data, higher entry costs are associated with a larger informal sector and overall number of operating firms, a smaller number of legally registered firms, and a higher concentration of employment in the smallest and largest firms.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 964.

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Date of creation: 2010
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Handle: RePEc:red:sed010:964

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  1. Laura Alfaro & Andrew Charlton & Fabio Kanczuk, 2008. "Plant-Size Distribution and Cross-Country Income Differences," NBER Working Papers 14060, National Bureau of Economic Research, Inc.
  2. 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.
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  16. Riccardo DiCecio & Levon Barseghayn, 2009. "Entry Costs, Misallocation, and Cross-Country Income and TFP Differences," 2009 Meeting Papers 428, Society for Economic Dynamics.
  17. Basu, Susanto, 1996. "Procyclical Productivity: Increasing Returns or Cyclical Utilization?," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 719-51, August.
  18. 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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Cited by:
  1. Vivien Lewis, 2009. "Optimal monetary policy and firm entry," Working Paper Research 178, National Bank of Belgium.
  2. Ashantha Ranasinghe, 2012. "Property Rights, Extortion and the Misallocation of Talent," 2012 Meeting Papers 293, Society for Economic Dynamics.
  3. Bhattacharya, Dhritiman & Guner, Nezih & Ventura, Gustavo, 2011. "Distortions, Endogenous Managerial Skills and Productivity Differences," IZA Discussion Papers 5963, Institute for the Study of Labor (IZA).
  4. Latchezar Popov & Toshihiko Mukoyama, 2013. "The Political Economy of Entry Barriers," 2013 Meeting Papers 1288, Society for Economic Dynamics.
  5. 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.
  6. Giuseppe Fiori & Fabio Ghironi & Matteo Cacciatore, 2012. "Market Deregulation and Optimal Monetary Policy in a Monetary Union," 2012 Meeting Papers 678, Society for Economic Dynamics.
  7. 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.
  8. Diego Restuccia, 2013. "The Latin American Development Problem: An Interpretation," JOURNAL OF LACEA ECONOMIA, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
  9. Diego Restuccia & Richard Rogerson, 2012. "Misallocation and Productivity," Working Papers tecipa-468, University of Toronto, Department of Economics.
  10. Paul Bergin & Ling Feng & Ching-Yi Lin, 2014. "Financial Frictions and Firm Dynamics," NBER Working Papers 20099, National Bureau of Economic Research, Inc.
  11. Janiak, Alexandre, 2013. "Structural unemployment and the costs of firm entry and exit," Labour Economics, Elsevier, vol. 23(C), pages 1-19.

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