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Entry Costs Rise with Growth

Author

Listed:
  • Peter J. Klenow
  • Huiyu Li

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. Our findings suggest that productivity-enhancing policies will not induce firm entry, thereby limiting the total impact of such policies on welfare.

Suggested Citation

  • Peter J. Klenow & Huiyu Li, 2024. "Entry Costs Rise with Growth," Working Papers 24-63, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:24-63
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    File URL: https://www2.census.gov/library/working-papers/2024/adrm/ces/CES-WP-24-63.pdf
    File Function: First version, 2024
    Download Restriction: no
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    More about this item

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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