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  3. American Economic Journal: Macroeconomics
  4. April 2022
  5. Entry Barriers, Idiosyncratic Distortions, and the Firm Size Distribution

Entry Barriers, Idiosyncratic Distortions, and the Firm Size Distribution

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Abstract

This paper studies the interaction between barriers to firm entry and distortions to allocative efficiency in a standard model of firm dynamics. We derive a strategy to infer entry barriers based on cross-country differences in the firm size distribution and idiosyncratic distortions. The inferred barriers resemble regulation-based indicators in advanced economies but are substantially higher in middle- and low-income countries. Regulation-based indicators cannot account for cross-country differences in average firm size and underestimate the aggregate productivity gains associated with their removal by up to 8 percent on average.

Citation

Fattal-Jaef, Roberto N. 2022. "Entry Barriers, Idiosyncratic Distortions, and the Firm Size Distribution." American Economic Journal: Macroeconomics, 14 (2): 416-68. DOI: 10.1257/mac.20200234

Additional Materials

JEL Classification

  • D21 Firm Behavior: Theory
  • D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
  • H25 Business Taxes and Subsidies including sales and value-added (VAT)
  • L11 Production, Pricing, and Market Structure; Size Distribution of Firms
  • L60 Industry Studies: Manufacturing: General
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