This paper describes a DSGE model where the extensive margin of activity —the number of varieties available for consumption—, depends on micro-founded decisions of entry and exit in the goods market. Both the extended model and a more conventional version have been estimated with US data...

Entry rates have a negative long-run effect on US regional growth, which contradicts innovation-based growth models. This puzzle is resolved when a model-consistent specification is estimated using per capita entry growth. Evidence supports the Schumpeterian hypothesis of a positive relationship...