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Entry Costs Rise with Growth

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  • 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. 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.

Suggested Citation

  • Peter J. Klenow & Huiyu Li, 2024. "Entry Costs Rise with Growth," NBER Working Papers 32974, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32974
    Note: EFG PR
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    More about this item

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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