Firm Entry and Exit and Aggregate Growth

95 Pages Posted: 5 Feb 2019 Last revised: 17 Jun 2020

See all articles by Jose Asturias

Jose Asturias

U.S. Census Bureau

Sewon Hur

Federal Reserve Bank of Dallas

Timothy J. Kehoe

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

Kim J. Ruhl

New York University (NYU), Leonard N. Stern School of Business - Department of Economics

Date Written: June 16, 2020

Abstract

Applying the Foster, Haltiwanger, and Krizan (FHK) (2001) decomposition to plant-level manufacturing data from Chile and Korea, we find that the entry and exit of plants account for a larger fraction of aggregate productivity growth during periods of fast GDP growth. Studies of other countries confirm this empirical relationship. To analyze this relationship, we develop a simple model of firm entry and exit based on Hopenhayn (1992) in which there are analytical expressions for the FHK decomposition. When we introduce reforms that reduce entry costs or reduce barriers to technology adoption into a calibrated model, we find that the entry and exit terms in the FHK decomposition become more important as GDP grows rapidly, just as they do in the data from Chile and Korea.

Keywords: entry, exit, productivity, entry costs, barriers to technology adoption

JEL Classification: E22, O10, O38, O47

Suggested Citation

Asturias, Jose and Hur, Sewon and Kehoe, Timothy J. and Ruhl, Kim Joseph, Firm Entry and Exit and Aggregate Growth (June 16, 2020). FRB of Cleveland Working Paper No. 19-03R, NYU Stern School of Business, Available at SSRN: https://ssrn.com/abstract=3328873 or http://dx.doi.org/10.2139/ssrn.3328873

Jose Asturias

U.S. Census Bureau ( email )

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Sewon Hur (Contact Author)

Federal Reserve Bank of Dallas ( email )

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Timothy J. Kehoe

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

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National Bureau of Economic Research (NBER)

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Kim Joseph Ruhl

New York University (NYU), Leonard N. Stern School of Business - Department of Economics ( email )

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United States

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