Entry costs vary dramatically across countries. To assess their impact on cross-country differences in output and TFP, we construct a model with endogenous entry and operation decisions by .rms. We calibrate the model to match the U.S. distribution of employment and .rms by size. Higher entry costs lead to greater misallocation of productive factors and lower TFP and output. In the model, countries in the lowest decile of the entry costs distribution have 1.32 to 1.45 times higher TFP and 1.52 to 1.75 times higher output per worker than countries in the highest decile. As in the data, higher entry costs are associated with lower entry rates and business density.
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