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From Heavy-Tailed Micro to Macro: on the characterization of firm-level heterogeneity and its aggregation properties

Ruben Dewitte

MPRA Paper from University Library of Munich, Germany

Abstract: This paper emphasizes the importance of two sufficient statistics to characterize firm-level heterogeneity in the workhorse heterogeneous firms trade model: the Cumulative Distribution Function (CDF) and the mean of firm-level sales. Contradicting the strong focus on the CDF, a close fit to average sales proves to be critical for model performance. Moreover, this average varies largely across finite sample draws due to sales being heavy-tailed, providing evidence that individual firms can influence the aggregate economy. As a result, modeled aggregate trade elasticities and Gains From Trade are unlikely to materialize: they are biased in finite samples and underlying characterizations of firm-level heterogeneity are rejected by the data.

Keywords: Average productivity; firm size distribution; heavy-tailed Distributions; granularity; gains from trade (search for similar items in EconPapers)
JEL-codes: F11 F12 L11 (search for similar items in EconPapers)
Date: 2020-09-16
New Economics Papers: this item is included in nep-bec, nep-ind and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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