Beiträge zur Jahrestagung des Vereins für Socialpolitik 2016: Demographischer Wandel - Session: Trade and Institutions F19-V1
What is the effect of trade on the size distribution of firms? We collect historical data between 1882 and 1907 from the German Empire to address this question. Our data allow us to match three data sets according to the same geographic boundaries: industry census data, railway trade data and waterway trade data. The key finding is that trade liberalization impacts the firm size distribution heterogeneously across three size categories. We find evidence of a stark shift in employment share from small and medium firms towards larger firms and from small firms towards medium and large firms in firm share. A “Bartik” instrument is proposed to argue that the correlations described are indeed causal. A model of intra-industry trade sheds light on the economic mechanism at play. Comparative statics reveal that further economic integration captured by a fall in transport costs increases average firm size.