Big Fish in a Small Pond: Locally-Dominant Firms and the Business Cycle
Journal of Economic Behavior & Organization, Volume 180, December 2020
82 Pages Posted: 14 Dec 2016 Last revised: 29 Oct 2020
Date Written: November 12, 2019
Abstract
Following Gabaix (2011), we identify locally-dominant firms that have a strong impact on their local macroeconomic environment, but are not among the largest 100 U.S. firms. Idiosyncratic shocks to these locally-dominant firms also propagate nationally and explain a significant portion of aggregate U.S.\ macroeconomic fluctuations. Specifically, we find that locally-dominant firms exist in 13 U.S. states and productivity shocks to these firms explain almost 50% of the U.S. GDP growth.
Keywords: Idiosyncratic shocks; state-level business cycle; U.S. business cycle; economic contagion
JEL Classification: B22, E30, E32
Suggested Citation: Suggested Citation