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Entry Costs, Industry Structure, and Cross-Country Income and TFP Differences

  • Riccardo DiCecio

    (FRB of St. Louis)

  • Levon Barseghyan

    (Cornell University)

Entry costs vary dramatically across countries. To assess their impact we construct a model with endogenous entry and operation decisions by rms and calibrate it to match the U.S. distribution of firms by size. Higher entry costs lead to greater misallocation of productive factors and lower TFP and output. In the model, countries in the lowest decile of the entry costs distribution have 1.35 to 1.50 times higher TFP and 1.57 to 1.82 times higher output per worker than countries in the highest decile. As in the data, higher entry costs are associated with a larger informal sector and overall number of operating firms, a smaller number of legally registered firms, and a higher concentration of employment in the smallest and largest firms.

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Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 964.

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Date of creation: 2010
Date of revision:
Handle: RePEc:red:sed010:964
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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