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Economies of Scale and the Size of Exporters

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  • Roc Armenter
  • Miklós Koren

Abstract

Exporters are few---less than one fifth among U.S. manufacturing firms---and are larger than non-exporting firms---about 4-5 times more total sales per firm. These facts are often cited as support for models with economies of scale and firm heterogeneity as in Melitz (2003). We find that the basic Melitz model cannot simultaneously match the size and share of exporters given the observed distribution of total sales. Instead exporters are expected to be between 90 and 100 times larger than non-exporters. It is easy to reconcile the model with the data. However, a lot of variation independent of firm size is needed to do so. This suggests that economies of scale play only a minor role in determining the export status of a firm. We show that the augmented model also has markedly different implications in the event of a trade liberalization. Most of the adjustment is through the intensive margin; and productivity gains due to reallocation are halved.

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Paper provided by Center for Firms in the Global Economy in its series CeFiG Working Papers with number 7.

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Date of creation: 12 Mar 2009
Date of revision: 12 Mar 2009
Handle: RePEc:cfg:cfigwp:7

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