Research / BFI Working PaperJul 27, 2018

How Wide Is the Firm Border?

Enghin Atalay, Ali Hortaçsu, Mary Jialin Li, Chad Syverson

We examine the within- and across-firm shipment decisions of tens of thousands of goods-producing and distributing establishments. This allows us to quantify the normally unobservable forces that determine firm boundaries; which transactions are mediated by ownership control, as opposed to contracts or markets. We find firm boundaries to be an economically significant barrier to trade: having an additional vertically integrated establishment in a given destination zip code has the same effect on shipment volumes as a 40 percent reduction in distance. We then calibrate a multi-sector trade model to quantify the economy-wide implications of transacting across vs. within firm boundaries.

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