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Entry and exit as a source of aggregate productivity growth in two alternative technological regimes

Author

Listed:
  • Carlos Carreira

    () (GEMF and Faculdade de Economia, Universidade de Coimbra)

  • Paulino Teixeira

    () (GEMF and Faculdade de Economia, Universidade de Coimbra)

Abstract

This paper proposes a neo-Schumpeterian model in order to discuss how the mechanisms of entry and exit contribute to industry productivity growth in alternative technological regimes. Our central hypothesis is that new firms generate gains in aggregate productivity by increasing both the productivity level and competition intensity. By assuming that firms learn about the relevant technology through a variety of sources, and by allowing a continuous flow of entry and exit into the market, our study shows that firm exit and output contraction take mostly place among less productive firms, while output expansion and entry are concentrated among the more efficient ones. Most of the market share variation, however, comes from the increased competition brought in by new firms who force the least productive firms to exit. We were also able to replicate the fact that the greater is the competitive pressure generated by new entrants, the higher is the expected productivity level of established firms. Overall, our analysis suggests that micro analysis is the proper complement to aggregate industry studies, as it provides a considerable insight into the causes of productivity growth.

Suggested Citation

  • Carlos Carreira & Paulino Teixeira, 2008. "Entry and exit as a source of aggregate productivity growth in two alternative technological regimes," GEMF Working Papers 2008-01, GEMF, Faculty of Economics, University of Coimbra, revised Oct 2010.
  • Handle: RePEc:gmf:wpaper:2008-01
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Filipe Silva & Carlos Carreira, 2016. "The Role of Financial Constraints in the Services Sector: How Different is it from Manufacturing?," Notas Económicas, Faculty of Economics, University of Coimbra, issue 43, pages 21-41, June.
    2. Carlos Carreira & Paulino Teixeira, 2016. "Entry and exit in severe recessions: lessons from the 2008–2013 Portuguese economic crisis," Small Business Economics, Springer, vol. 46(4), pages 591-617, April.
    3. Carlos Carreira & Filipe Silva, 2013. "Do Size, Age and Dividend Policy Provide Useful Measures of Financing Constraints? New Evidence from a Panel of Portuguese Firms," GEMF Working Papers 2013-26, GEMF, Faculty of Economics, University of Coimbra.
    4. Carlos Carreira, 2013. "Learning, Exporting and Firm Productivity: Evidence from Portuguese Manufacturing and Services Firms," GEMF Working Papers 2013-23, GEMF, Faculty of Economics, University of Coimbra.
    5. Asma Raies, 2013. "Firm entry and aggregate efficiency growth: An optimal dynamic - Program of entry and R&D investment," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 10(3), pages 355-376, December.

    More about this item

    Keywords

    Entry and Exit; Industrial Dynamics; Learning; Productivity growth; Nelson-Winter industry model;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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