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Entry Barriers, Financial Frictions, and Cross-Country Differences in Income and TFP

  • Lei Fang

    (Federal Reserve Bank of Atlanta)

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This paper develops a model to assess the quantitative effects of barriers to entry and financial frictions on cross-country income and TFP differences. The main focus is on the interaction between barriers to entry and financial frictions. The model is calibrated to match the firm level statistics for the U.S. economy assuming a perfect financial market. The quantitative analysis shows that barriers to entry and financial frictions together can explain a factor nine of the differences in income per capita and a factor five of the differences in TFP across countries, and half of the differences are accounted by the interaction between barriers to entry and financial frictions. The main mechanism is that financial frictions amplify the effects of barriers to entry by boosting the effective entry costs.

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File URL: https://www.economicdynamics.org/meetpapers/2010/paper_505.pdf
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Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 505.

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Date of creation: 2010
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Handle: RePEc:red:sed010:505
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  1. Francisco J. Buera & Joseph P. Kaboski & Yongseok Shin, 2011. "Finance and Development: A Tale of Two Sectors," American Economic Review, American Economic Association, vol. 101(5), pages 1964-2002, August.
  2. Ana Hidalgo & Andres Erosa, 2004. "On Capital Market Imperfections as an Origin of Low TFP and Economic Rents," 2004 Meeting Papers 16, Society for Economic Dynamics.
  3. Chen, Kaiji & Song, Zheng, 2013. "Financial frictions on capital allocation: A transmission mechanism of TFP fluctuations," Journal of Monetary Economics, Elsevier, vol. 60(6), pages 683-703.
  4. repec:bla:restud:v:72:y:2005:i:1:p:43-56 is not listed on IDEAS
  5. Giuseppe Nicoletti & Stefano Scarpetta, 2003. "Regulation, productivity and growth: OECD evidence," Economic Policy, CEPR;CES;MSH, vol. 18(36), pages 9-72, 04.
  6. Bridgman, Benjamin R. & Livshits, Igor D. & MacGee, James C., 2007. "Vested interests and technology adoption," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 649-666, April.
  7. Steven J. Davis & R. Jason Faberman & John Haltiwanger & Ron Jarmin & Javier Miranda, 2008. "Business Volatility, Job Destruction, and Unemployment," NBER Working Papers 14300, National Bureau of Economic Research, Inc.
  8. Giorgio Bellettini & Gianmarco I.P. Ottaviano, 2003. "Special Interests and Technological Change," Working Papers 2003.59, Fondazione Eni Enrico Mattei.
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