The Rise of Specialized Firms
February 2024
Working Paper Number:
CES-24-06
Abstract
This paper studies firm diversification over 6-digit NAICS industries in U.S. manufacturing. We find that firms specializing in fewer industries now account for a substantially greater share of production than 40 years ago. This reallocation is a key driver of rising industry concentration. Specialized firms have displaced diversified firms among industry leaders'absent this reallocation concentration would have decreased. We then provide evidence that specialized firms produce higher-quality goods: specialized firms tend to charge higher unit prices and are more insulated against Chinese import competition. Based on our empirical findings, we propose a theory in which growth shifts demand toward specialized, high-quality firms, which eventually increases concentration. We conclude that one should expect rising industry concentration in a growing economy.
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:
production,
market,
company,
manufacturing,
growth,
import,
export,
competitive,
monopolistically,
diversified,
specialization,
diversification,
profit,
economically,
competitor,
wholesale,
industry variation,
industry concentration,
diversify,
globalization,
trading
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identified to contain references to specific institutions, datasets, and other organizations.
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National Science Foundation,
Census of Manufactures,
Ordinary Least Squares,
Bureau of Economic Analysis,
Census Bureau Longitudinal Business Database,
2SLS,
Longitudinal Business Database,
Census of Manufacturing Firms,
Economic Census,
North American Industry Classification System,
Herfindahl Hirschman Index,
Census Bureau Disclosure Review Board,
Longitudinal Firm Trade Transactions Database
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