“Entry Costs Rise with Growth” by Dr. Huiyu Li
Federal Reserve Bank of San Francisco
Across cohorts of plants (or firms) within the U.S., India and China, we find that average discounted profits rise systematically with average labor productivity at the time of entry. In models with a zero profit condition for entrants, these facts imply that the cost of creating a new business increases as development proceeds. This force dampens the welfare impact of policies in a host of models of firm dynamics, growth, and trade.