Working Paper: NBER ID: w28123
Authors: Julian Di Giovanni; Andrei A. Levchenko; Isabelle Mejean
Abstract: This paper uses a dataset covering the universe of French firm-level value added, imports, and exports over the period 1995-2007 and a quantitative multi-country model to study the international transmission of business cycle shocks at both the micro and the macro levels. Because the largest firms are the most likely to trade internationally, foreign shocks are transmitted to the domestic economy primarily through the large firms. We first document a novel stylized fact: larger French firms are significantly more sensitive to foreign GDP growth. We then implement a quantitative framework calibrated to the full extent of the observed heterogeneity in firm size, exporting, and importing. We simulate the propagation of foreign shocks to the French economy and report one micro and one macro finding. At the micro level heterogeneity across firms predominates: 45 to 75% of the impact of foreign fluctuations on French GDP is accounted for by the “foreign granular residual” – the term capturing the larger firms’ greater responsiveness to the foreign shocks. At the macro level, firm heterogeneity attenuates the impact of foreign shocks, with the GDP responses 10 to 20% larger in a representative firm model compared to the baseline model.
Keywords: foreign shocks; granular fluctuations; trade; business cycle; firm heterogeneity
JEL Codes: E32; F15; F23; F44; F62; L14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Foreign GDP growth (F62) | Value added of larger firms (L25) |
| Firm heterogeneity (D21) | Aggregate impact of foreign shocks (F41) |