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Relation entry, exit and productivity: an overview of recent theoretical and empirical literature

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  • Viktoria Kocsis
  • Victoria Shestalova
  • Henry van der Wiel
  • Nick Zubanov
  • Ruslan Lukach
  • Bert Minne

Abstract

This document provides a review of recent theoretical and empirical literature on the relationship between entry, exit and productivity. Decomposition methods show that entry and exit considerably contribute to productivity growth, but are unable to shed any light on the ultimate sources of productivity growth. However, the theories discussed do provide options for effective policy instruments. We argue that productivity or welfare should be the aim of policy and not the number of entrants, the intensity of competition or the amount of innovation expenditures.Taking a welfare approach, we address market failures with respect to entry. The most eminent market failure is market power of dominant incumbents. Lowering institutional entry barriers economy-wide is a promising policy option for further consideration.Whether such a policy measure actually improves social welfare depends also on the extent of other failures. Therefore, an ex ante cost-benefit analysis needs to precede intervention.

Suggested Citation

  • Viktoria Kocsis & Victoria Shestalova & Henry van der Wiel & Nick Zubanov & Ruslan Lukach & Bert Minne, 2009. "Relation entry, exit and productivity: an overview of recent theoretical and empirical literature," CPB Document 180, CPB Netherlands Bureau for Economic Policy Analysis.
  • Handle: RePEc:cpb:docmnt:180
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    References listed on IDEAS

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    Cited by:

    1. Brouwer, E. & van der Wiel, H.P., 2010. "Competition and Innovation : Pushing Productivity Up or Down?," Other publications TiSEM 9efe62df-d940-4471-8bc7-e, Tilburg University, School of Economics and Management.
    2. Nathan Chappell & Adam B. Jaffe & Trinh Le, 2018. "Worker Flows, Entry and Productivity in the New Zealand Construction Industry," NBER Working Papers 24376, National Bureau of Economic Research, Inc.
    3. Brouwer, E. & van der Wiel, H.P., 2010. "Competition and Innovation : Pushing Productivity Up or Down?," Discussion Paper 2010-52, Tilburg University, Center for Economic Research.

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    JEL classification:

    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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