Big Fish in a Small Pond: Locally-Dominant Firms and the Business Cycle

58 Pages Posted: 14 Dec 2016 Last revised: 14 Jul 2018

See all articles by Sima Jannati

Sima Jannati

University of Missouri-Columbia

George M. Korniotis

University of Miami; Miami Business School; University of Miami - Behavioral Decision Making Cluster

Alok Kumar

University of Miami - School of Business Administration

Date Written: June 29, 2018

Abstract

We use the Gabaix (2011) method to identify locally-dominant firms that are not among the largest 100 U.S. firms (i.e., nationally-dominant firms) but have a strong impact on their local macroeconomic environment. Idiosyncratic shocks to locally-dominant firms explain a significant portion of local business cycle as well as the aggregate U.S. macroeconomic fluctuations. Specifically, locally-dominant firms exist in 13 U.S. states and productivity shocks to these firms explain over 50% of U.S. GDP growth, which is larger than the impact of nationally-dominant firms identified in Gabaix (2011). These findings suggest that shocks to locally-dominant firms drive aggregate economic fluctuations.

Keywords: U.S. Business Cycle; Local Economy; Local Fluctuations; Locally-Dominant Firms; Idiosyncratic Shocks.

JEL Classification: B22, E30, E32

Suggested Citation

Jannati, Sima and Korniotis, George M. and Kumar, Alok, Big Fish in a Small Pond: Locally-Dominant Firms and the Business Cycle (June 29, 2018). Available at SSRN: https://ssrn.com/abstract=2884737 or http://dx.doi.org/10.2139/ssrn.2884737

Sima Jannati (Contact Author)

University of Missouri-Columbia ( email )

401 Cornell Hall
COLUMBIA, MO 65211
United States

George M. Korniotis

University of Miami ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
305-284-5728 (Phone)

Miami Business School ( email )

University of Miami - Behavioral Decision Making Cluster ( email )

5250 University Drive
Coral Gables, FL 33124
United States

Alok Kumar

University of Miami - School of Business Administration ( email )

514 Jenkins Building
Department of Finance
Coral Gables, FL 33124-6552
United States
305-284-1882 (Phone)

HOME PAGE: http://moya.bus.miami.edu/~akumar

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