Working Paper: NBER ID: w23202
Authors: Jose Asturias; Sewon Hur; Timothy J. Kehoe; Kim J. Ruhl
Abstract: Using data from Chile and Korea, we find that a larger fraction of aggregate productivity growth is due to firm entry and exit during fast-growth episodes compared to slow-growth episodes. Studies of other countries confirm this empirical relationship. We develop a model of endogenous firm entry and exit based on Hopenhayn (1992). Firms enter with efficiencies drawn from a distribution whose mean grows over time. After entering, a firm’s efficiency grows with age. In the calibrated model, reducing entry costs or barriers to technology adoption generates the pattern we document in the data. Firm turnover is crucial for rapid productivity growth.
Keywords: firm entry; firm exit; aggregate productivity growth; Chile; Korea
JEL Codes: E22; O10; O38; O47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Firm entry and exit (L11) | Aggregate productivity growth (O49) |
| Reductions in entry costs or barriers to technology adoption (O39) | Increase in contribution of entry and exit to productivity growth (O49) |
| Efficiency distribution of potential entrants improves over time (D61) | Higher productivity growth (O49) |