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Firm Entry and Exit and Aggregate Growth
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. ...
Working Paper
The Effects of Competition in the Retail Gasoline Industry
We estimate the effect of competition on incumbent firm pricing by using high frequency price data and the precise geographic location for all gas stations in California. Using an event study design, we find that the entry of a new station is associated with a 2.5 cent decrease in prices at incumbent stores, which equates to a 7 percent reduction in estimated retail markups. The effects are immediate, persistent and show no sign of deterrence or limit pricing behavior. In contrast, nearby exit results in precisely estimated null effects on prices with no evidence of predatory pricing in the ...
Working Paper
Firm Entry and Exit and Aggregate Growth
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 ...
Working Paper
Entry, exit, and the determinants of market structure
This paper estimates a dynamic, structural model of entry and exit in an oligopolistic industry and uses it to quantify the determinants of market structure and long-run firm values for two U.S. service industries, dentists and chiropractors. Entry costs faced by potential entrants, fixed costs faced by incumbent producers, and the toughness of short-run price competition are all found to be important determinants of long-run firm values, firm turnover, and market structure. Estimates for the dentist industry allow the entry cost to differ for geographic markets that were designated as Health ...
Working Paper
Every Cloud has a Silver Lining: Cleansing Effects of the Portuguese Financial Crisis
Using firm-level data, this paper shows that the Portuguese financial crisis was a period of intensified productivity-enhancing reallocation. Aggregate productivity gains, both in manufacturing and services, came from relatively higher contributions of entering and exiting firms and from reallocation of resources between surviving firms. At the microlevel, the crisis reduced the probability of survival for high- and low-productivity firms, but it hit low-productivity firms disproportionately harder. We also found important heterogeneous effects across economic sectors regarding input ...
Working Paper
More on Middlemen: Equilibrium Entry and Efficiency in Intermediated Markets
This paper generalizes Rubinstein and Wolinsky?s model of middlemen (intermediation) by incorporating production and search costs, plus more general matching and bargaining. This allows us to study many new issues, including entry, efficiency and dynamics. In the benchmark model, equilibrium exists uniquely, and involves production and intermediation for some parameters but not others. Sometimes intermediation is essential: the market operates iff middlemen are active. If bargaining powers are set correctly equilibrium is efficient; if not there can be too much or too little economic ...
Working Paper
The Great Recession and a Missing Generation of Exporters
The collapse of international trade surrounding the Great Recession has garnered significant attention. This paper studies firm entry and exit in foreign markets and their role in the post-recession recovery of U.S. exports using confidential microdata from the U.S. Census Bureau. We find that incumbent exporters account for the vast majority of the decline in export volumes during the crisis. The recession also induced a missing generation of exporters, with large increases in exits and a substantial decline in entries into foreign markets. New exporters during these years tended to have ...
Working Paper
Firm Entry and Exit and Aggregate Growth
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 ...
Working Paper
Firm Entry and Exit and Aggregate Growth
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 ...