Big Fish in a Small Pond: Locally-Dominant Firms and the Business Cycle
58 Pages Posted: 14 Dec 2016 Last revised: 14 Jul 2018
Date Written: June 29, 2018
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: Suggested Citation