Firm Entry and Exit and Aggregate Growth

70 Pages Posted: 27 Feb 2017

See all articles by Jose Asturias

Jose Asturias

Georgetown University School of Foreign Service in Qatar

Sewon Hur

Federal Reserve Bank of Cleveland

Timothy J. Kehoe

University of Minnesota - Twin Cities - Department of Economics; National Bureau of Economic Research (NBER)

Kim Ruhl

Pennsylvania State University, College of the Liberal Arts - Department of Economic

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Date Written: February 2017

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.

Suggested Citation

Asturias, Jose and Hur, Sewon and Kehoe, Timothy J. and Ruhl, Kim, Firm Entry and Exit and Aggregate Growth (February 2017). NBER Working Paper No. w23202. Available at SSRN: https://ssrn.com/abstract=2924292

Jose Asturias (Contact Author)

Georgetown University School of Foreign Service in Qatar ( email )

Education City
Al Huqoul St
Doha
Qatar

Sewon Hur

Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

Timothy J. Kehoe

University of Minnesota - Twin Cities - Department of Economics ( email )

271 19th Avenue South
1169 Management & Economics
Minneapolis, MN 55455
United States
612-625-1589 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Kim Ruhl

Pennsylvania State University, College of the Liberal Arts - Department of Economic ( email )

524 Kern Graduate Building
University Park, PA 16802-3306
United States

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