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Federal Reserve Bank of Cleveland
Working Papers (New Series)
Firm Entry and Exit and Aggregate Growth
Jose Asturias
Sewon Hur
Timothy J. Kehoe
Kim J. Ruhl
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.


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Jose Asturias & Sewon Hur & Timothy J. Kehoe & Kim J. Ruhl, Firm Entry and Exit and Aggregate Growth, Federal Reserve Bank of Cleveland, Working Papers (New Series) 190300, 01 Feb 2019.
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Keywords: Entry; Exit; Productivity; Entry costs; Barriers to technology adoption
DOI: 10.26509/frbc-wp-201903
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