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

Author/Editor:

Andrei A Levchenko ; Julian Di Giovanni ; Romain Ranciere

Publication Date:

April 1, 2010

Electronic Access:

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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.

Series:

Working Paper No. 2010/109

Subject:

Agroindustries Economic sectors Exports International trade

Frequency:

Monthly

English

Publication Date:

April 1, 2010

ISBN/ISSN:

9781455200689/1018-5941

Stock No:

WPIEA2010109

Pages:

31

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