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)
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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Journal Article: Barriers to firm growth in open economies (2019)
Working Paper: Barriers to Firm Growth in Open Economies (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eie:wpaper:1304
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