ENTRY AND EXIT, CYCLES, AND PRODUCTIVITY GROWTH

This paper examines the impact of cycles on long-term growth in the pr esence of entry and exit of firms. It is argued that whereas mild fluc tuations may be beneficial for growth, more severe fluctuations will b e detrimental for growth. The essential point is whether recessions go beyond the point that triggers (large-scale) exit of firms. Mild fluc tuations may have a positive effect through the intertemporal substitu tion between production and productivity improving activities. Severe fluctuations, however, which lead to exit of firms, cause losses of kn owledge and skills during recessions, and are therefore bad for long-t erm growth.