Power Laws in Firm Size and Openness to Trade: Measurement and Implications
Julian Di Giovanni
International Monetary Fund (IMF) - Research Department
Andrei A. Levchenko
University of Michigan - Department of Economics; National Bureau of Economic Research (NBER)
International Monetary Fund (IMF)
CEPR Discussion Paper No. DP7773
Existing estimates of power laws in firm size typically ignore the impact of international trade. Using a simple theoretical framework, we show that international trade systematically affects the distribution of firm size: the power law exponent among exporting firms should be strictly lower in absolute value than the power law exponent among non-exporting firms. We use a dataset of French firms to demonstrate that this prediction is strongly supported by the data. While estimates of power law exponents have been used to pin down parameters in theoretical and quantitative models, our analysis implies that the existing estimates are systematically lower than the true values. We propose two simple ways of estimating power law parameters that take explicit account of exporting behavior.
Number of Pages in PDF File: 33
Keywords: Firm Size Distribution, International Trade, Power Laws
JEL Classification: F12, F15working papers series
Date posted: April 12, 2010
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