Essays in Firm Dynamics

In the first chapter, I estimate the toughness of local competition over time. To derive this estimate, I extend a generalized monopolistic competition model with variable markups. This model generates insights that allow me to measure competition as the sensitivity of weighted-average markup to changes in the number of competitors using directly observable variables. I then use confidential Census data from 1997 to 2016 for the empirical estimation, which shows that local competition in the U.S. has decreased on average in non-tradable industries during this time period.

In my second essay, I study the effect of the recent increase in productivity dispersion on aggregate TFP. I hypothesize that rising revenue productivity dispersion results from rising technical productivity dispersion. I quantitatively evaluate the consequences of such changes using a calibrated oligopolistic competition model, in which markups endogenously respond to productivity dispersion and lead to misallocation. By first calibrating the model to the U.S. manufacturing sector in 1997, then feeding in the observed trend in revenue productivity dispersion, aggregate TFP initially increases then declines when revenue productivity dispersion is 1.47 times the 1997 level. Then I provide evidence in support of the initial hypothesis that it is the rise in true productivity dispersion as opposed to a rise in wedges which has led to higher revenue productivity dispersion in recent decades.

In the third chapter, I study firm dynamics in a developing country context. Specifically, I estimate a reduced form model that shows how firms adjust their factors of production to shocks of different duration. Using this model, I show that there are asymmetric responses of labor and capital to different types of shocks. Firms increase employment growth and reduce capital growth when being hit with transitory shocks and vice versa with permanent shocks. This finding seems to make sense in a developing country context, where firms face loose labor regulations and binding financial constraints.