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Barriers to Firm Growth in Open Economies

  • Facundo Piguillem
  • Loris Rubini

Studies measuring barriers to firm growth assume economies are closed, ignoring information on firm exports. We argue that this information is key to interpret data and improve the accuracy of model predictions. To show this, we develop a dynamic model with export and domestic barriers. We show theoretically that the closed economy model under-estimates barriers and amplifies counterfactuals. By calibrating the model to a set of European countries, we find that quantitatively this matters: for example, the closed economy fails to see that Italian firms are very efficient exporters but lousy innovators, and instead conclude that they are mediocre innovators. In terms of predictions, the closed economy model delivers an elasticity of welfare to innovation costs between 31 and 64 percent larger than the open economy model.

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Paper provided by Instituto de Economia. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 443.

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Date of creation: 2013
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Handle: RePEc:ioe:doctra:443
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  1. Bee Yan Aw & Mark J. Roberts & Daniel Yi Xu, 2011. "R&D Investment, Exporting, and Productivity Dynamics," American Economic Review, American Economic Association, vol. 101(4), pages 1312-44, June.
  2. James Tybout, 1999. "Manufacturing Firms in Developing Countries: How Well Do They Do, and Why?," Development and Comp Systems 9906001, EconWPA, revised 10 Jun 1999.
  3. Maria Guadalupe & Olga Kuzmina & Catherine Thomas, 2010. "Innovation and Foreign Ownership," NBER Working Papers 16573, National Bureau of Economic Research, Inc.
  4. Jan De Loecker, 2004. "Do Exports Generate Higher Productivity? Evidence from Slovenia," LICOS Discussion Papers 15104, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  5. Impullitti, Giammario & Irarrazabal, Alfonso A. & Opromolla, Luca David, 2013. "A theory of entry into and exit from export markets," Journal of International Economics, Elsevier, vol. 90(1), pages 75-90.
  6. Johannes Van Biesebroeck, 2003. "Exporting Raises Productivity in Sub-Saharan African Manufacturing Plants," NBER Working Papers 10020, National Bureau of Economic Research, Inc.
  7. Loris Rubini, 2010. "Innovation and the Elasticity of Trade Volumes to Tariff Reductions," 2010 Meeting Papers 570, Society for Economic Dynamics.
  8. Xavier Gabaix, 2011. "The Granular Origins of Aggregate Fluctuations," Econometrica, Econometric Society, vol. 79(3), pages 733-772, 05.
  9. Michael E. Waugh, 2009. "International trade and income differences," Staff Report 435, Federal Reserve Bank of Minneapolis.
  10. Loris Rubini & Klaus Desmet & Facundo Piguillem & Aranzazu Crespo, . "Breaking down the barriers to firmgrowth in Europe The fourth EFIGE policy report," Blueprints, Bruegel, number 744, 5.
  11. Erzo G. J. Luttmer, 2007. "Selection, Growth, and the Size Distribution of Firms," The Quarterly Journal of Economics, MIT Press, vol. 122(3), pages 1103-1144, 08.
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