Power laws in firm size and openness to trade: Measurement and implications

Julian di Giovanni, Andrei Levchenko and Romain Ranciere

Journal of International Economics, 2011, vol. 85, issue 1, 42-52

Abstract: 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, both for the economy as a whole and at the industry level. Furthermore, the differences between power law coefficients for exporters and non-exporters are larger in sectors that are more open to trade. 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.

Keywords: Firm; size; distribution; International; trade; Power; laws (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (149)

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Related works:
Working Paper: Power laws in firm size and openness to trade: Measurement and implications (2011)
Working Paper: Power laws in firm size and openness to trade: Measurement and implications (2011)
Working Paper: Power Laws in Firm Size and Openness to Trade: Measurement and Implications (2010)
Working Paper: Power Laws in Firm Size and Openness to Trade: Measurement and Implications (2010)
Working Paper: Power Laws in Firm Size and Openness to Trade: Measurement and Implications (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:85:y:2011:i:1:p:42-52

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