This paper revisits the question: what is the impact of entry costs on cross country differences in output and total factor productivity (TFP)? I argue that for the countries with low levels of financial development the answer is the conventional one in the literature, that higher entry costs cause misallocation of productive factors and lower TFP. But for the countries with reasonably high levels of financial development the conventional answer doesn't hold. Motivated by observations on cross-country data, I propose a new theory on the impact of entry costs on TFP. In my mechanism, there are two competing forces that affect TFP when entry cost changes: A wealth-based selection force, and a productivity-based selection force. This results in TFP being a hump-shaped function of entry costs. That is, entry costs aren't inherently bad for TFP if their target is to deter low productivity individuals from starting business. I develop an analytically tractable model of firm dynamics with entry barriers and financial frictions and derive the sufficient conditions for the impact of entry cost on TFP in both wealth- and productivity-based selection phases.

In this paper, I analyze the impact of entry barriers on a two-sector economy with perfect and imperfect financial markets. The literature suggests that higher barriers to entry would hurt the economy through occupational and factor misallocation. However, a separate analysis of economies with nearly perfect and imperfect financial markets shows that these results only hold for the economies with imperfect financial structures. In the economies with near-perfect financial markets, the entry barriers have almost no impact or may positively impact output or total factor productivity (TFP). This study shows that higher entry costs would hurt the productivity of the sector with high concentration, i.e., with large-scale firms, and would benefit the more competitive sector, i.e., with many small firms. As a result, the entry barriers might help or hurt economies depending on their sector/industry structure. To analyze the dynamics of entry barriers and their impact on TFP, I develop an entrepreneurship model in continuous time with two sectors in the presence of both financial and physical frictions. My analysis suggests that higher entry barriers would help the economies with a relatively high share of the small-scaled sector and vice versa.

In this paper, I develop and analyze a model of firms' entry and exit in a continuous-time setting. I build my analysis based on Hopenhayn (1992) firm dynamics framework and use the continuous-time structure to solve the model. Solving the model in continuous time brings in many advantages, such as lower computational cost and the model's tractability. However, there are some challenges too. One of the major challenges is to have entry cost in the model, i.e., to obtain a Hamilton-Jacobi-Bellman equation that incorporates the entry cost. I use a form of exit cost as the future value of the entry cost to avoid this problem. To do so, I have to keep track of the firms' age distribution in addition to the distribution of the shocks, which makes my model richer than Hopenhayn's (1992). To solve for the joint stationary distribution of the firms, I introduce a simple process for aging and obtain the Kolmogorov forward equation using the age and shock processes. Another important contribution of this paper is to introduce a way to deal with the Kolmogorov equation in two states with discontinuity and combine them into one equation that governs the state of the economy. The results obtained in this paper are in line with those reported in Hopenhayn (1992). However, the methods, tools, and the way of approaching the model differs depending on whether I solve the model in discrete or continuous time. The tools and procedures developed in this paper can easily be extended to other optimal stopping time problems.

This paper aims to evaluate the performance of different value-at-risk (VaR) calculation methods, allowing us to identify models that are valid for use in emerging markets. We apply several widely used methods for calculating VaR, including both parametric and nonparametric methods. We consider different confidence levels for the VaR as well as different sample sizes. To test our models’ validity, we use both unconditional and conditional coverage backtests. In addition, we use a ranking method (which entails a backtesting approach based on the regulatory loss function) to appropriately compare the VaR calculation methods. Obtained from data for three different indexes (namely, Iranian, Turkish and Russian), our backtesting results indicate that parametric models from the generalized autoregressive conditional heteroscedasticity family, with asymmetric effects and fat tails (associated with their use of a t distribution), display the best performance. That is, the best-performing models under emerging market conditions are those that satisfy three important criteria simultaneously. First, they account for the time-varying variance. Second, they capture the asymmetric nature of shocks. Third, they are able to deal with fat tails in the distribution. These can also be regarded as the main features of emerging markets.

​Access to financing is more challenging for small businesses, as they do not have sufficient collateral to pledge for better loan terms. Government policies that favor small businesses are widespread across countries. Motivated by cross-country observations on size-dependent business financing, I develop a hypothesis that size-dependent policies can help or hurt output and total factor productivity (TFP). Too much favoring of either small or large businesses would impede economic development prospects. Potential entrants generally start with small size firms and then expand their businesses if they are highly productive. Favoring large firms would create losses in the extensive margin as it means lower expected returns for potential entrants. On the other hand, favoring small businesses generates losses in the intensive margin because it distorts the resources away from highly productive large businesses and populates the economy with many, perhaps low productivity, small businesses. A corollary to my analysis is that size-dependent policies are more effective in financially underdeveloped countries where small businesses are financially in a more disadvantaged position. However, in financially developed countries, these policies are not as effective, or they may even backfire. My theory can explain the opposing views in the literature regarding the effect of size-dependent policies, where both losses and gains are documented related to such policies.

Using firm-level cross country data, I document evidence on differences in valuation of collateral by firms and financial intermediaries. This valuation gap is related to property rights and varies across countries. It is a source of financial frictions, which would create capital misallocation. If firms' valuation is much greater than financial intermediaries', it might deter firms from getting loans as they may lose their valuable collateral upon default. On the other hand, a small valuation difference would mean more desirable loan terms that would encourage financing. Using a model of entrepreneurship with both financial and physical frictions, I will quantitatively analyze the impact of improvements in property rights on firms' financing and investment decisions and economic development. Firms can use capital as collateral to access financing. The valuation difference in my model arises from capital adjustment costs, which take the form of partial irreversibility. The difference between sale and re-purchase cost of capital makes capital more valuable for firms than for financial intermediaries and creates the collateral valuation gap. My preliminary analysis shows that property rights improvements have significant implications on firms' financing and economic development.