Power Laws in Firm Size and Openness to Trade: Measurement and Implications

By Andrei A Levchenko, Julian Di Giovanni, Romain Ranciere

April 1, 2010

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Andrei A Levchenko, Julian Di Giovanni, and Romain Ranciere. Power Laws in Firm Size and Openness to Trade: Measurement and Implications, (USA: International Monetary Fund, 2010) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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 rms. We use a dataset of French firms to demonstrate that this prediction is strongly supported by the data. 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.

Subject: Agroindustries, Economic sectors, Exports, International trade

Keywords: Agroindustries, Exporting firm, Exports, Firm export, Firm size, Firm Size Distribution, Firms model, Global, International Trade, Orders firm, Power Laws, Size distribution, Size heterogeneity, WP

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/109
Stock No:

WPIEA2010109
ISBN:

9781455200689
ISSN:

1018-5941

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