Working Paper: CEPR ID: DP14219
Authors: Thomas Philippon; German Gutierrez
Abstract: We study the entry and exit of firms across U.S. industries over the past 40 years. The elasticity of entrywith respect to Tobin’s Q was positive and significant until the late 1990s but declined to zero afterwards.Standard macroeconomic models suggest two potential explanations: rising entry costs or rising returnsto scale. We find that neither returns to scale nor technological costs can explain the decline in the Q elasticityof entry, but lobbying and regulations can. We reconcile conflicting results in the literature andshow that regulations drive down the entry and growth of small firms relative to large ones, particularlyin industries with high lobbying expenditures. We conclude that lobbying and regulations have causedfree entry to fail.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased regulations (G18) | decline in the entry of small firms (L26) |
| increased lobbying (D72) | decline in the entry of small firms (L26) |
| lobbying and regulations (K23) | free entry to fail (L17) |
| regulations (K20) | negative impact on small firms (L25) |
| rise in regulations since 2000 (G18) | increase in incumbents' profits (D43) |
| Tobin's Q increase (O49) | increase in entry rates (J68) |
| decline in elasticity of entry with respect to Tobin's Q (L15) | decline in entry rates (J68) |