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Industry Evolution and Transition: A Neoclassical Benchmark

  • Andrew Atkeson
  • Patrick Kehoe

Recently, a large number of countries have undertaken major reforms that have led to a large increase in the number of new enterprises. After these reforms, however, it has taken a number of years before output and productivity have begun to grow. The thesis of this paper is that the process of starting new enterprises is turbulent and time-consuming and as a result, it takes time before the benefits of reform show up in increases in measured output and productivity. To establish a neoclassical benchmark for reforming economies, we ask what the path of transition looks like in a reforming economy for which the process governing the growth of new enterprises looks like it does in the U.S., a well-functioning market economy. We find that it takes 5-7 years until measured output and productivity begin to grow rapidly following reform. This finding suggests that, even if all other aspects of the economy are perfect, the transition following economy-wide reforms should take a substantial amount of time.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6005.

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Date of creation: Apr 1997
Date of revision:
Handle: RePEc:nbr:nberwo:6005
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