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Entry Costs, Misallocation, and Cross-Country Income and TFP Differences

Author Info

  • Riccardo DiCecio

    (FRB of St. Louis)

  • Levon Barseghayn

    (Cornell University)

Abstract

Entry costs vary dramatically across countries. To assess their impact we construct a model with endogenous entry and operation decisions by firms and calibrate it to match the U.S. distribution of firms by age and size. Higher entry costs lead to greater misallocation of productive factors and lower TFP and output. In the model, countries with entry costs in the lowest decile of the distribution have 2.32 times higher TFP (3.43 in the data) than countries in the highest decile. As in the data, higher entry costs are associated with higher mean and variance of the employment distribution across firms.

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Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 428.

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Date of creation: 2009
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Handle: RePEc:red:sed009:428
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Cited by:

  1. Raphael Bergoeing & Norman V. Loayza & Facundo Piguillem, 2011. "The Aggregate and Complementary Impact of Micro Distortions," Working Papers wp338, University of Chile, Department of Economics.
  2. D'Erasmo, Pablo N. & Moscoso Boedo, Hernan J., 2012. "Financial structure, informality and development," Journal of Monetary Economics, Elsevier, vol. 59(3), pages 286-302.
  3. Lei Fang, 2010. "Entry cost, financial friction, and cross-country differences in income and TFP," Working Paper 2010-16, Federal Reserve Bank of Atlanta.
  4. Hernan J Moscoso Boedo & Asli Senkal & Pablo D'Erasmo, 2011. "Misallocation, Informality and Human Capital," 2011 Meeting Papers 881, Society for Economic Dynamics.
  5. Barseghyan, Levon & DiCecio, Riccardo, 2011. "Entry costs, industry structure, and cross-country income and TFP differences," Journal of Economic Theory, Elsevier, vol. 146(5), pages 1828-1851, September.
  6. Michael Peters, 2011. "Heterogeneous Mark-Ups and Endogenous Misallocation," 2011 Meeting Papers 78, Society for Economic Dynamics.
  7. Alexandre Janiak, 2010. "Structural unemployment and the regulation of product market," Documentos de Trabajo 274, Centro de Economía Aplicada, Universidad de Chile.
  8. Michael Peters, 2010. "Mark-Up Distortions and Endogenous Misallocation," 2010 Meeting Papers 431, Society for Economic Dynamics.

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