Entry and Productivity Growth: Evidence from Microlevel Panel Data

How does entry affect productivity growth of incumbents? In this paper weexploit policy reforms in the UK that changed entry conditions by opening upthe UK economy during the 1980s and panel data on British establishments toshed light on this question. We show that more entry measured by a highershare of industry employment in foreign firms has led to faster total factorproductivity growth of domestic incumbent firms and thus to faster aggregateproductivity growth. How does entry affect productivity growth of incumbents? In this paper weexploit policy reforms in the UK that changed entry conditions by opening upthe UK economy during the 1980s and panel data on British establishments toshed light on this question. We show that more entry measured by a highershare of industry employment in foreign firms has led to faster total factorproductivity growth of domestic incumbent firms and thus to faster aggregateproductivity growth.