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

  • Carlos Carreira

    ()

    (GEMF and Faculdade de Economia, Universidade de Coimbra)

  • Paulino Teixeira

    ()

    (GEMF and Faculdade de Economia, Universidade de Coimbra)

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.

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File URL: http://gemf.fe.uc.pt/workingpapers/pdf/2008/gemf_2008-01_v2.pdf
File Function: Revised Version, 2010
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Paper provided by GEMF - Faculdade de Economia, Universidade de Coimbra in its series GEMF Working Papers with number 2008-01.

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Length: 53 pages
Date of creation: 2008
Date of revision: Oct 2010
Publication status: Published in Structural Change and Economic Dynamics 22(2): 135-150, 2011.
Handle: RePEc:gmf:wpaper:2008-01
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