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Firm Entry and Exit and Aggregate Growth

Listed author(s):
  • Jose Asturias
  • Sewon Hur
  • Timothy J. Kehoe
  • Kim J. Ruhl

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 23202.

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Date of creation: Feb 2017
Handle: RePEc:nbr:nberwo:23202
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