Firm Growth through New Establishments; Professor Toshihiko MUKOYAMA (Georgetown University)

Abstract:

This paper analyzes firm-level employment along the extensive margin (the number of establishments in a firm) and the intensive margin (the number of workers per establishment in a firm). Utilizing administrative datasets, we document that the firm-size distribution, and both extensive and intensive margins, exhibit fat tails; and the growth in average firm size between 1990-2014 was primarily driven by an expansion along the extensive margin, particularly in very large firms. We develop a tractable general equilibrium growth model with external innovation that leads to extensive-margin firm growth, and internal innovation that leads to intensive-margin growth. The model generates fat-tailed distributions of firm size, establishment size, and the number of establishments per firm. We estimate the model to uncover the fundamental forces that caused the distributional changes from 1995-2014 and highlight the importance of declining external innovation costs, establishment exit rates, and aggregate productivity growth rate.

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