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CEP discussion paper
Trade and the size distribution of firms: evidence from the German Empire
Marcus Biermann
October 2016
Paper No' CEPDP1450:
Full Paper (pdf)

JEL Classification: F14; F15

Tags: firm size distribution; firm heterogeneity; technology adoption; german empire

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 and waterway trade data. The key findings are that trade integration impacts the firm size distribution heterogeneously across three size categories. We find evidence of a stark shift in employment and firm share from small and medium firms towards larger firms. A “Bartik” instrument is proposed to argue that the correlations described are indeed causal. We provide evidence for a fall in transport costs and technology adoption as mechanisms to explain the stylized facts observed in the data