Was nineteenth century Japan an example of finance-led growth? Using a new panel dataset of startup firms from the Meiji Period (1868-1912), I test whether financial sector development influenced the emergence of modern industries. Results from multiple econometric models suggest that increased financial intermediation, particularly from banks, is associated with greater firm establishment. This corresponds with the theory of late development that industrialization requires intermediaries to mobilize and allocate financing. The effect is pronounced in the second half of the period and for heavy industries, which may be due to improved institutions and larger capital requirements, respectively.
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Technological Leadership and Late Development: Evidence from Meiji Japan, 1868-1912
December 2007
Working Paper Number:
CES-07-32R
Large family-owned conglomerates known as zaibatsu have long been credited with leading Japanese industrialization during the Meiji Period (1868-1912), despite a lack of empirical analysis. Using a new dataset collected from corporate genealogies estimate of entry probabilities, I find that characteristics associated with zaibatsu increase a firm's likelihood of being an industry pioneer. In particular, first entry probabilities increase with industry diversification and private ownership, which may provide internal financing and risk-sharing, respectively. Nevertheless, the costs of excessive diversification may deter additional pioneering, which may account for the loss of zaibatsu technological leadership by the turn of the century.
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Entrepreneurship and Japanese Industrialization in Historical Perspective
September 2009
Working Paper Number:
CES-09-30
Studies of entrepreneurship in nineteenth century Japan typically focus on the activities of leading industrialists who founded large, family-owned conglomerates known as zaibatsu. These individuals do not conform well with the archetypal Schumpeterian entrepreneur, but this discrepancy may be more an issue of context than behavior. However, due to a lack of documentation for smaller independent firms, it is difficult to make this comparison. To broaden the scope of analysis, I use data drawn from corporate genealogies, which provide a more complete cross-section of entrepreneurial activity. This dataset of firm entry during the Meiji Period (1868-1912) covers a wide range of industries, allowing me to analyze aspects of Japan's early industrialization that heretofore have relied on anecdotal or case evidence. I also propose a game-theoretic model of entry appropriate for entrepreneurs in late developing economies that exploit the qualitative nature of these data.
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Import Competition and Firms' Internal Networks
September 2021
Working Paper Number:
CES-21-28
Using administrative data on U.S. multisector firms, we document a cross-sectoral propagation of the import competition from China ('China shock') through firms' internal networks: Employment of an establishment in a given industry is negatively affected by China shock that hits establishments in other industries within the same firm. This indirect propagation channel impacts both manufacturing and non-manufacturing establishments, and it operates primarily through the establishment exit. We explore a range of explanations for our findings, highlighting the role of within-firm trade across sectors, scope of production, and establishment size. At the sectoral aggregate level, China shock that propagates through firms' internal networks has a sizable impact on industry-level employment dynamics.
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Firm Dynamics, Persistent Effects of Entry Conditions, and Business Cycles
January 2017
Working Paper Number:
CES-17-29
This paper examines how the state of the economy when businesses begin operations affects
their size and performance over the lifecycle. Using micro-level data that covers the entire universe of businesses operating in the U.S. since the late 1970s, I provide new evidence that businesses born in downturns start on a smaller scale and remain smaller over their entire lifecycle. In fact, I find no evidence that these differences attenuate even long after entry. Using new data on the productivity and composition of startup businesses, I show that this persistence is related to selection at entry and demand-side channels.
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IT and Beyond: The Contribution of Heterogenous Capital to Productivity
December 2004
Working Paper Number:
CES-04-20
This paper explores the relationship between capital composition and productivity using a unique and remarkably detailed data set on firm-level, asset-specific investment in the U.S. Using cross-sectional and longitudinal regressions, I find that among all types of capital, only computers, communications equipment, software, and office building are associated (positively) with current and subsequent years' multifactor productivity. The link between offices and productivity, however, is shown to be due to the correlation between the use of offices and organizational capital. In contrast, the link between ICT equipment and productivity is robust to a number of controls and appears to be part causal effect and part reflection of the correlation between ICT and firm fixed (or slow-moving) effects. The implied marginal products by capital type are derived and compared to official data on rental prices; substantial differences exist for a number of key capital types. Lastly, I provide evidence of complementaries and substitutabilities among capital types ' a rejection of the common assumption of perfect substitutability ' and between particular capital types and labor.
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Supply Chain Adjustments to Tariff Shocks: Evidence from Firm Trade Linkages in the 2018-2019 U.S. Trade War
August 2024
Working Paper Number:
CES-24-43
We use the 2018-2019 U.S. trade war to examine how supply chains adjustments to a tariff cost shock affect imports and exports. Using confidential firm-trade linked data, we show that the decline in imports of tariffed goods was driven by discontinuations of U.S. buyer'foreign supplier relationships, reduced formation of new relationships, and exits by U.S. firms from import markets altogether. However, tariffed products where imports were concentrated in fewer suppliers had a smaller decline in import growth. We then construct measures of export exposure to import tariffs by linking tariffs paid by importing firms to their exported products. We find that the most exposed products had lower exports in 2018-2019, with most of the impact occurring in 2019.
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Compositional Nature of Firm Growth and Aggregate Fluctuations
March 2020
Working Paper Number:
CES-20-09
This paper studies firm dynamics over the business cycle. I present evidence from the United Kingdom that more rapidly growing firms are born in expansions than in recessions. Using administrative records from Census data, I find that this observation also holds for the last four recessions in the United States. I also present suggestive evidence that financial frictions play an important role in determining the types of firms that are born at different stages of the business cycle. I then develop a general equilibrium model in which firms choose their managers' span of control at birth. Firms that choose larger spans of control grow faster and eventually get to be larger, and in this sense have a larger target size. Financial frictions in the form of collateral constraints slow the rate at which firms reach their target size. It takes firms longer to get up to scale when collateral constraints tighten; therefore, businesses with the largest target size are affected disproportionately more. Thus, fewer entrepreneurs find it profitable to choose larger projects when financial conditions deteriorate. Using Bayesian methods, I estimate the model using micro and aggregate data from the United Kingdom. I find that financial shocks account for over 80% of fluctuations in the formation of businesses with a large target size, and TFP and labor wedge shocks account for the remaining 20%. An independently estimated version of the model with no choice over the span of control needs larger aggregate shocks in order to account for the same data series, suggesting that the intensive margin of business formation is important at business cycle frequencies. The model with the choice over the span of control generates an empirically relevant and non-targeted collapse in the right tail of the cumulative growth distribution among firms started in recessions, while the model without such a choice does not. The paper also discusses implications for micro-targeted government stimulus policies.
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The Modern Wholesaler: Global Sourcing, Domestic Distribution, and Scale Economies
December 2018
Working Paper Number:
CES-18-49
Nearly half of all transactions in the $6 trillion market for manufactured goods in the United
States were intermediated by wholesalers in 2012, up from 32 percent in 1992. Seventy percent of this increase is due to the growth of 'superstar' firms - the largest one percent of wholesalers. Structural estimates based on detailed administrative data show that the rise of the largest wholesalers was driven by an intuitive linkage between their sourcing of goods from abroad and an expansion of their domestic distribution network to reach more buyers. Both elements require scale economies and lead to increased wholesaler market shares and markups. Counterfactual analysis shows that despite increases in wholesaler market power, intermediated international trade has two benefits for buyers: directly through buyers' valuation of globally sourced products, and indirectly through the passed-through benefits of wholesaler economies of scale and increased quality.
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Entry, Expansion, and Intensity in the U.S. Export Boom, 1987-1992
September 2001
Working Paper Number:
CES-01-09
U.S. exports grew at a rate of 10.3% per year from 1987-1992, far faster than the economy as a whole and faster than in any other five year period since 1960. This paper examines the sources of the export boom considering the role of entry, firm expansion and export intensity. The preponderance of the increase in exports came from increasing export intensity at existing exporters rather than from new entry into exporting. The small role of entry relative to export intensity offers support for the importance of sunk costs in the export market. In addition, we consider competing explanations for the rise in exports using a comprehensive plant level data set. Changes in exchange rates and rises in foreign income were the dominant sources for the export increase, while productivity increases in U.S. plants played a relatively small role.
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Growing Oligopolies, Prices, Output, and Productivity
November 2018
Working Paper Number:
CES-18-48
American industries have grown more concentrated over the last forty years. In the absence of productivity innovation, this should lead to price hikes and output reductions, decreasing consumer welfare. Using public data from 1972-2012, I use price data to disentangle revenue from output. Difference-in-difference estimates show that industry concentration increases are positively correlated to productivity and real output growth, uncorrelated with price changes and overall payroll, and negatively correlated with labor's revenue share. I rationalize these results in a simple model of competition. Productive industries (with growing oligopolists) expand real output and hold down prices, raising consumer welfare, while maintaining or reducing their workforces, lowering labor's share of output.
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