Applying the Foster, Haltiwanger, and Krizan (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.
Asturias, Jose, Sewon Hur, Timothy J. Kehoe, and Kim J. Ruhl.
"Firm Entry and Exit and Aggregate Growth."
American Economic Journal: Macroeconomics,
Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
Oligopoly and Other Imperfect Markets
Industry Studies: Manufacturing: General
Industrialization; Manufacturing and Service Industries; Choice of Technology
Management of Technological Innovation and R&D
Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence