Entry Barriers, Idiosyncratic Distortions, and the Firm Size Distribution

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 b...

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Bibliographic Details
Published in:American economic journal. Macroeconomics 2022-04, Vol.14 (2), p.416-468
Main Author: Fattal-Jaef, Roberto N.
Format: Article
Language:English
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Summary: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. (JEL D21, D24, H25, L11, L60)
ISSN:1945-7707
1945-7715
DOI:10.1257/mac.20200234