A Unified Theory of Firm Selection and Growth

By Costas Arkolakis. Social Science Research Network, 2009

241 citations recorded by the source corpus.

This paper develops a theory of firm selection and growth and embeds it into an international trade framework of balanced growth. I assume that firm-level growth is the result of idiosyncratic productivity improvements while there is continuous arrival of new potential producers. Firms can also pay an increasing market penetration cost to sell more to a given market. The model is consistent with a set of salient regularities of firm and exporter selection and growth, as well as the observed distribution of sales. I calibrate the model parameters that determine firm dynamics by looking at the exit rates of a cohort at the US census and the elasticity of trade in Eaton and Kortum. This elasticity is regulated in the model by the firm-level growth process. The calibrated model can account for almost all the turnover and growth of US census cohorts over two decades. It can also account for a large part of the turnover and growth of Colombian exporters in individual destinations.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/3e153c99293ff13d2573f53e614deede28e62082

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Citations in the corpus

Exporting under trade policy uncertainty: Theory and evidence (2014, background): “Arkolakis (2009) explains this same pattern by assuming increasing fixed costs of market penetration to reach consumers in a model without an option value of waiting to enter.”
Power Laws in Firm Size and Openness to Trade: Measurement and Implications (2010, unknown): “4See Arkolakis (2008, 2009) for related theoretical treatments.”
Trade and Investment under Policy Uncertainty: Theory and Firm Evidence (2015, background): “Arkolakis (2011) explains this same pattern by assuming increasing xed costs of market penetration to reach consumers in a model without an option value of waiting to enter.”
Models of Growth and Firm Heterogeneity (2010, methodology): “The Brownian component of (6) amounts to a common multiplicative shock to all the units of capital inside the firm.”