Entry Costs Rise with Growth

Peter J. Klenow and Huiyu Li

No 32974, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Over time and across states in the U.S., the number of firms is more closely tied to overall employment than to output per worker. In many models of firm dynamics, trade, and growth with a free entry condition, these facts imply that the costs of creating a new firm increase sharply with productivity growth. This increase in entry costs can stem from the rising cost of labor used in entry and weak or negative knowledge spillovers from prior entry. How entry costs vary with growth matters for welfare. For example, our findings suggest that productivity-enhancing policies will not induce entry of firms, thereby limiting the total impact of such policies on welfare.

JEL-codes: O41 (search for similar items in EconPapers)
Date: 2024-09
New Economics Papers: this item is included in nep-bec and nep-sbm
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Published as Peter J. Klenow & Huiyu Li, 2025. "Entry Costs Rise with Growth," Journal of Political Economy Macroeconomics, vol 3(1), pages 43-74.

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