The European Journal of Comparative Economics

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EJCE Year: 2013, December. Volume: 10 - Issue: 3

Firm entry and aggregate efficiency growth: An optimal dynamic - Program of entry and RD investment

by Asma Raies

Start page: 355 - End page: 376

Keywords: Firms entry; Research and Development; aggregate efficiency; endogenous growth

Jel code: L11; L12; L22; L25; O41

DOI:

Abstract:

The effect of entry on the aggregate efficiency growth is still theoretically and empirically unresolved. Many studies focused on this effect in short and long-run, without considering the dynamic transition and how do entry affect the convergence of the industrytoward its long-run equilibrium? This paper aims to provide an answer and to fill this gap by employingoptimal control principles. Our model exhibits saddlepath stability and shows that the effect of entry and entry liberalizing policy (reducing the entry cost) on the aggregate efficiency growth may be positive, negative or nil depending on the industry's initial characteristics (size and R and D). This theoretical result can justify the inconclusive current empirical evidence.

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