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Firm Entry and Exit and Aggregate Growth

Author

Listed:
  • Asturias, Jose

    (Georgetown University Qatar)

  • Hur, Sewon

    (University of Pittsburgh)

  • Kehoe, Timothy J.

    (Federal Reserve Bank of Minneapolis)

  • Ruhl, Kim J.

    (Pennsylvania State University)

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

  • Asturias, Jose & Hur, Sewon & Kehoe, Timothy J. & Ruhl, Kim J., 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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    Cited by:

    1. Asturias, Jose & Hur, Sewon & Kehoe, Timothy J. & Ruhl, Kim J., 2016. "The interaction and sequencing of policy reforms," Journal of Economic Dynamics and Control, Elsevier, vol. 72(C), pages 45-66.
    2. Lorenza Rossi, 2018. "The Overshooting of Firms Destruction, Banks and Productivity Shocks," DEM Working Papers Series 147, University of Pavia, Department of Economics and Management.
    3. Kehoe, Timothy J. & Costa, Daniela & Raveendranathan, Gajen, 2016. "The Stages of Economic Growth Revisited, Part 2: Catching Up to and Joining the Economic Leader," Economic Policy Paper 16-6, Federal Reserve Bank of Minneapolis.
    4. Germán Gutiérrez & Thomas Philippon, 2017. "Declining Competition and Investment in the U.S," NBER Working Papers 23583, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Entry; Exit; Productivity; Entry barriers; Barriers to technology adoption;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • 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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