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An Alternative Theory of the Plant Size Distribution, with Geography and Intra- and International Trade

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  • Thomas J. Holmes
  • John J. Stevens

Abstract

There is wide variation in the sizes of manufacturing plants, even within the most narrowly defined industry classifications. Standard theories attribute such size differences to productivity differences. This paper develops an alternative theory in which industries are made up of large plants producing standardized goods and small plants making custom or specialty goods. It uses confidential census data to estimate the parameters of the model. The model fits the data well. In particular, the predictions of the model regarding the effect of a surge of imports from China are consistent with what happened over the period 1997-2007.

Suggested Citation

  • Thomas J. Holmes & John J. Stevens, 2014. "An Alternative Theory of the Plant Size Distribution, with Geography and Intra- and International Trade," Journal of Political Economy, University of Chicago Press, vol. 122(2), pages 369-421.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/674633
    DOI: 10.1086/674633
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    References listed on IDEAS

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    1. Nicholas Bloom & Mirko Draca & John Van Reenen, 2016. "Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, IT and Productivity," Review of Economic Studies, Oxford University Press, vol. 83(1), pages 87-117.
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    5. Richard Baldwin & James Harrigan, 2011. "Zeros, Quality, and Space: Trade Theory and Trade Evidence," American Economic Journal: Microeconomics, American Economic Association, vol. 3(2), pages 60-88, May.
    6. J. Bradford Jensen & Lori G. Kletzer, 2005. "Tradable Services: Understanding the Scope and Impact of Services Outsourcing," Working Paper Series WP05-9, Peterson Institute for International Economics.
    7. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
    8. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    9. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-1150, September.
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