Firm Entry and Exit and Aggregate Growth

Asturias, Jose; Hur, Sewon; Kehoe, Timothy J.; Ruhl, Kim J.

doi:10.24149/gwp411

Working Paper

Firm Entry and Exit and Aggregate Growth

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. To analyze this relationship, we develop a model of firm entry and exit based on Hopenhayn (1992). 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;

https://doi.org/10.24149/gwp411