Working Paper: NBER ID: w24208
Authors: David Sraer; David Thesmar
Abstract: We consider a dynamic economy populated by heterogeneous firms subject to generic capital frictions: adjustment costs, taxes and financing constraints. A random subset of firms in this economy receives an empirical "treatment", which modifies the parameters governing these frictions. An econometrician observes the firm-level response to this treatment, and wishes to calculate how macroeconomic outcomes would change if all firms in the economy were treated. Our paper proposes a simple methodology to estimate this aggregate counterfactual using firm-level evidence only. Our approach takes general equilibrium effects into account, requires neither a structural estimation nor a precise knowledge on the exact nature of the experiment and can be implemented using simple moments of the distribution of revenue-to-capital ratios. We provide a set of sufficient conditions under which these formulas are valid and investigate the robustness of our approach to multiple variations in the aggregation framework.
Keywords: firm-level experiments; aggregate outcomes; sufficient statistics; general equilibrium effects
JEL Codes: E2; E22; G0; G3; G30; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| policy intervention targeting a random subset of firms (L10) | changes in parameters governing capital frictions (D24) |
| changes in parameters governing capital frictions (D24) | changes in revenue-to-capital ratios (D29) |
| changes in revenue-to-capital ratios (D29) | improved efficiency in treated firms (D21) |
| improved efficiency in treated firms (D21) | enhanced aggregate productivity when generalized to all firms (E23) |
| treatment effects on revenue-to-capital ratios (C22) | changes in aggregate outcomes (E10) |
| general equilibrium effects (D50) | alteration of distribution of capital wedges (D33) |
| revenue-to-capital ratio independent of general equilibrium conditions (D59) | reliable aggregation of firm-level data to predict macroeconomic outcomes (E10) |
| treatment effects observed at firm level (L25) | estimation of aggregate output and total factor productivity (TFP) (E23) |
| policies aimed at reducing capital frictions (O24) | significant improvements in aggregate productivity when generalized across firms (O49) |