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The Interaction of Entry Barriers and Financial Frictions in Growth

Author

Listed:
  • Timothy Kehoe

    (University of Minnesota)

  • Sewon Hur

    (University of Pittsburgh)

  • Kim Ruhl

    (New York University Stern School of Busi)

  • Jose Asturias

    (Georgetown University)

Abstract

This paper studies the interaction between financial frictions and firm entry barriers on growth. We construct a model in which aggregate growth is driven by the continual entry of new firms that face barriers to entry and financial frictions. We find that reforms to financial frictions and entry barriers are substitutes -- once a country has enacted one type of reform, the percentage increase in GDP from the other reform decreases. We also show that economies with more severe financial frictions and entry costs have lower levels of output along the balanced growth path, even though all economies grow at the same constant rate. The model generates sharp predictions regarding entry barriers, financial frictions, and output levels, which are borne out in the cross country data.

Suggested Citation

  • Timothy Kehoe & Sewon Hur & Kim Ruhl & Jose Asturias, 2015. "The Interaction of Entry Barriers and Financial Frictions in Growth," 2015 Meeting Papers 792, Society for Economic Dynamics.
  • Handle: RePEc:red:sed015:792
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    File URL: https://economicdynamics.org/meetpapers/2015/paper_792.pdf
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    References listed on IDEAS

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    14. Timothy J. Kehoe & Kim J. Ruhl, 2010. "Why Have Economic Reforms in Mexico Not Generated Growth?," Journal of Economic Literature, American Economic Association, vol. 48(4), pages 1005-1027, December.
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    Cited by:

    1. Jeremy Greenwood & Juan Sanchez & Cheng Wang, 2013. "Quantifying the Impact of Financial Development on Economic Development," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 194-215, January.
    2. Manuel García-Santana & Roberto Ramos, 2015. "Distortions and the size distribution of plants: evidence from cross-country data," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 6(3), pages 279-312, August.
    3. Paul Bergin & Ling Feng & Ching-Yi Lin, 2014. "Financial Frictions and Firm Dynamics," NBER Working Papers 20099, National Bureau of Economic Research, Inc.

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