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Barriers to Firm Growth in Open Economies

Facundo Piguillem () and Loris Rubini ()

No 1304, EIEF Working Papers Series from Einaudi Institute for Economics and Finance (EIEF)

Abstract: The international trade literature finds strong links between firm growth and export decisions. In spite of this, the literature analyzing cross-country differences in firm growth commonly abstracts from trade. We develop a tractable, dynamic model to understand the consequences of this abstraction. We find that the closed economy (i) under-estimates domestic (firm) growth barriers, potentially modifying the rankings across countries; and (ii) over-predicts the effects of counterfactuals. To asses the quantitative relevance of these findings, we calibrate the model to a set of European countries. The model successfully captures differences in value added per worker, accounting for between 54 and 87% of the differences across countries. We find that a closed economy alters the ranking of countries according to the size of these barriers and over-predicts the effects of counterfactuals on welfare by between 31 and 64% relative to the open economy. Thus, trade is essential for measuring barriers to firm growth and their counterfactuals in open economies.

Pages: 53 pages
Date: 2013, Revised 2013-03
New Economics Papers: this item is included in nep-bec, nep-dge and nep-opm
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Related works:
Journal Article: Barriers to firm growth in open economies (2019) Downloads
Working Paper: Barriers to Firm Growth in Open Economies (2013) Downloads
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