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Grupo de Estudos Monetários e Financeiros

Estudos do GEMF, N.º 01 de 2008


Entry and Exit as a Source of Aggregate Productivity Growth in

Two Alternative Technological Regimes

(Publicado em Structural Change and Economic Dynamics 22(2): 135-150, 2011)

Carlos Carreira
Faculdade de Economia and GEMF, Universidade de Coimbra

Paulino Teixeira
Faculdade de Economia and GEMF, Universidade de Coimbra

This paper proposes a neo-Schumpeterian model in order to discuss how the mechanisms of entry and exit contribute to industry productivity growth in alternative technological regimes. Our central hypothesis is that new firms generate gains in aggregate productivity by increasing both the productivity level and competition intensity. By assuming that firms learn about the relevant technology through a variety of sources, and by allowing a continuous flow of entry and exit into the market, our study shows that firm exit and output contraction take mostly place among less productive firms, while output expansion and entry are concentrated among the more efficient ones. Most of the market share variation, however, comes from the increased competition brought in by new firms who force the least productive firms to exit. We were also able to replicate the fact that the greater is the competitive pressure generated by new entrants, the higher is the expected productivity level of established firms. Overall, our analysis suggests that micro analysis is the proper complement to aggregate industry studies, as it provides a considerable insight into the causes of productivity growth.

JEL Classification: L1, D24, O3, C63.

Entry and Exit; Industrial Dynamics; Learning; Productivity growth; Nelson-Winter industry model.

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