Exporter Dynamics, Firm Size and Growth, and Partial Year Effects
Two otherwise identical firms that enter the same market in different months, one in January and one in December, will report dramatically different annual sales for the first calendar year of operations. This partial year effect in annual data lea...
| Main Authors: | , , , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2013/11/18554162/exporter-dynamics-firm-size-growth-partial-year-effects http://hdl.handle.net/10986/16902 |
| Summary: | Two otherwise identical firms that enter
the same market in different months, one in January and one
in December, will report dramatically different annual sales
for the first calendar year of operations. This partial year
effect in annual data leads to downward biased observations
of the level of activity upon entry and upward biased growth
rates between the year of entry and the following year. This
paper examines the implications of partial year effects
using Peruvian export data. The partial year bias is very
large: the average level of first-year exports of new
exporters is understated by 65 percent and the average
growth rate between the first and second year of exporting
is overstated by 112 percentage points. This paper
re-examines a number of stylized facts about firm size and
growth that have motivated rapidly expanding theoretical and
empirical literatures on firm export dynamics. Correcting
the partial year effect eliminates unusually high growth
rates in the first year of exporting, raises initial export
levels, and shifts 10 percent of market entrants from below
to above the median size. Revisiting an older set of facts
on firm size and growth, the paper finds that correcting for
partial year biases reduces the number of small firms in the
firm size distribution and weakens the negative relationship
between firm growth and firm size. |
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