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

33 Pages Posted: 12 Apr 2010

See all articles by Julian di Giovanni

Julian di Giovanni

Federal Reserve Banks - Federal Reserve Bank of New York; Centre for Economic Policy Research (CEPR)

Andrei A. Levchenko

University of Michigan - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Romain G. Rancière

University of Southern California

Multiple version iconThere are 2 versions of this paper

Date Written: April 2010

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. 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

JEL Classification: F12, F15

Suggested Citation

di Giovanni, Julian and Levchenko, Andrei A. and Rancière, Romain G., Power Laws in Firm Size and Openness to Trade: Measurement and Implications (April 2010). CEPR Discussion Paper No. DP7773, Available at SSRN: https://ssrn.com/abstract=1586254

Julian Di Giovanni (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

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HOME PAGE: http://julian.digiovanni.ca

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HOME PAGE: http://julian.digiovanni.ca

Andrei A. Levchenko

University of Michigan - Department of Economics ( email )

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HOME PAGE: http://alevchenko.com

National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

London
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Romain G. Rancière

University of Southern California ( email )

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Los Angeles, CA 90089
United States

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