We construct a model in which aggregate growth is driven by the continual entry of new firms that face barriers to entry that are exacerbated by financial frictions. We show that economies with more severe financial frictions have lower levels of output and consumption along the balanced growth...

Using data from Chile and Korea, we find that a larger fraction of aggregate productivity growth is due to firm entry and exit during fast-growth episodes compared to slow-growth episodes. Studies of other countries confirm this empirical relationship. We develop a model of endogenous firm entry...