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Barriers to Firm Growth in Open Economies

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  • Facundo Piguillem
  • Loris Rubini

Abstract

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.

Suggested Citation

  • Facundo Piguillem & Loris Rubini, 2013. "Barriers to Firm Growth in Open Economies," Documentos de Trabajo 443, Instituto de Economia. Pontificia Universidad Católica de Chile..
  • Handle: RePEc:ioe:doctra:443
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    File URL: http://www.economia.uc.cl/docs/dt_443.pdf
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    References listed on IDEAS

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    Cited by:

    1. Joachim Wagner, 2015. "Firm age and the margins of international trade: Comparable evidence from five European countries," Economics Bulletin, AccessEcon, vol. 35(1), pages 145-158.
    2. Colin Davis & Ken-ichi Hashimoto, 2019. "Innovation Offshoring with Fully Endogenous Growth," ISER Discussion Paper 1055, Institute of Social and Economic Research, Osaka University.
    3. Steinberg, Joseph B., 2019. "Brexit and the macroeconomic impact of trade policy uncertainty," Journal of International Economics, Elsevier, vol. 117(C), pages 175-195.
    4. Francesca Barbiero & Michael Blanga-Gubbay & Valeria Cipollone & Koen De Backer & Sébastien Miroudot & Alexandros Ragoussis & André Sapir & Reinhilde Veugelers & Erkki Vihriälä & Guntram B. Wolff & Ge, . "Manufacturing Europe’s future," Blueprints, Bruegel, number 795, March.

    More about this item

    JEL classification:

    • F1 - International Economics - - Trade
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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