Effects Of Exit On Growth In An Imperfectly Competitive Economy
Source: Kyoto University
This paper develops a tractable model for the simultaneous investigation of the exit of firms and economic growth. Using this model, it shows that the existence of exit of firms weakens the positive effects of an intensified product market competition on the growth rate. A more intense product market competition encourages surviving firms to innovate by raising the marginal gain from innovation, while it discourages them to innovate due to raising the possibility of firms to exit the market.