Entry Barriers, Idiosyncratic Distortions, and the Firm Size Distribution
Roberto N. Fattal-Jaef
- American Economic Journal: Macroeconomics (Forthcoming)
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.
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