Entry and Exit, Multi-Product Firms, and Allocative Distortions
This paper proposes a multi-product model of firm dynamics to understand the implications of allocative distortions for the decisions of firms to enter, exit, and supply products to the market. These margins of adjustment have been largely neglecte...
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2017
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| Online Access: | http://documents.worldbank.org/curated/en/622581491318574397/Entry-and-exit-multi-product-firms-and-allocative-distortions http://hdl.handle.net/10986/26369 |
| Summary: | This paper proposes a multi-product
model of firm dynamics to understand the implications of
allocative distortions for the decisions of firms to enter,
exit, and supply products to the market. These margins of
adjustment have been largely neglected in the literature yet
have direct contributions to welfare and productivity. The
paper finds that when the analysis accounts for these
channels, the traditional focus on long-run gains in Total
Factor Productivity from reversing misallocation strongly
underestimates the welfare gains that accrue when accounting
for transitional dynamics. Calibrating the distortions to
China in 1998, the analysis finds a welfare gain of 32
percent and a steady-state gain of 10 percent. |
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