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This paper proposes a quantitative model of endogenous firm dynamics to
study growth acceleration episodes triggered by reforms. We find that reversals
of entry distortions lead to persistent growth in TFP and declining average firm
size, as in the experience of successful post-communist transitions. Removing
idiosyncratic distortions results in a more protracted path of TFP and a rising
average firm size, as in non-communist growth accelerations. When calibrating
the reforms to China’s liberalization, we find that the model accounts for one third
of the observed growth in TFP, while matching the dynamics of average
firm size and income inequality.
