Working Paper: NBER ID: w12322
Authors: Volker Nocke; Stephen Yeaple
Abstract: We develop a theory of multiproduct firms to analyze the effects of globalization on the distributions of firm size, scope, and productivity. Our model explains two puzzles. First, it explains the well-known size-discount puzzle: large firms have lower values of Tobin's Q than small firms. Second, it explains the globalization-skewness puzzle documented in the empirical part of our paper: a multilateral reduction in trade costs leads to a flattening of the size distribution of firms. In our model, globalization not only affects the distribution of observed productivities but also productivity at the firm level.
Keywords: No keywords provided
JEL Codes: F12; F15; L11; L25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| multilateral trade liberalization (F13) | flattening of the domestic size distribution of firms (L25) |
| flattening of the domestic size distribution of firms (L25) | larger firms downsizing by shedding product lines (L25) |
| flattening of the domestic size distribution of firms (L25) | smaller firms expanding their offerings (L25) |
| firms' organizational capabilities (L22) | larger firms downsizing by shedding product lines (L25) |
| firms' organizational capabilities (L22) | smaller firms expanding their offerings (L25) |
| trade liberalization (F13) | changes in productivity at the firm level (D21) |
| changes in trade costs (F12) | changes in firm outcomes (D21) |
| larger firms downsizing by shedding product lines (L25) | negative relationship between firm size and Tobin's Q (L25) |
| trade liberalization (F13) | observed changes in firm size and productivity (L25) |