Studies measuring barriers to firm growth assume economies are closed, ignoring information on firm exports. We argue that information on exports is key to interpreting data and improving the accu- racy of model predictions. To show this, we develop a dynamic model with export and domestic barriers. We show theoretically that the closed economy model underestimates barriers and amplifies counterfac- tuals. By calibrating the model to a set of European countries, we find that the quantitative difference is significant: for example, the closed economy model fails to see that Italian firms are very efficient exporters but poor innovators, and instead concludes that they are mediocre innovators. In terms of pre- dictions, the closed economy model delivers an elasticity of welfare to innovation costs between 31 and 64 percent larger than the open economy model.
