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

Author

Listed:
  • 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.

Suggested Citation

  • Riccardo DiCecio & Levon Barseghayn, 2009. "Entry Costs, Misallocation, and Cross-Country Income and TFP Differences," 2009 Meeting Papers 428, Society for Economic Dynamics.
    • Handle: RePEc:red:sed009:428
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Bah, El-hadj & Fang, Lei, 2016. "Entry Costs, Financial Frictions, And Cross-Country Differences In Income And Tfp," Macroeconomic Dynamics, Cambridge University Press, vol. 20(04), pages 884-908, June.
    3. Alexandre Janiak, 2010. "Structural unemployment and the regulation of product market," Documentos de Trabajo 274, Centro de Economía Aplicada, Universidad de Chile.
    4. Raphael Bergoeing & Norman V. Loayza & Facundo Piguillem, 2011. "The Aggregate and Complementary Impact of Micro Distortions," 2011 Meeting Papers 1426, Society for Economic Dynamics.

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