Date of Award

Spring 2021

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Economics

First Advisor

Kortum, Samuel

Abstract

In this dissertation, I study the effects of geography on firm dynamics. I do so from three different perspectives. The first two chapters explore how geography affects sales of branded retail products in the United States. Chapter 1 focuses on the spread of sales over time and space. It describes each component of sales and discusses the potential role of word-of-mouth in the growth of brands. Chapter 2 studies the cross-section relation of brand sales and distance. The chapter analyses how physical trade frictions and information frictions interact and generate the observed reduction in customer base as distance increases. Chapter 3 uses a reduced-form approach to analyze the border-effect using Brazilian exporters' data. I show that serving a neighboring country increases the probability of entry, the expected growth of sales and reduces the probability of exit. Chapter 1 studies the spread of sales of branded products in the United States. Distance affects the cost of moving goods and people across space. Recent evidence suggests that geography also affects the flow of information. To investigate this hypothesis, I study the causes of brand sales growth over time and space. I analyze data from a large set of branded retail products sold in different regions in the United States and document a series of stylized facts about their life-cycle. I find that brands typically sell to a small number of locations that tend to be geographically close. Growth usually happens around previously successful markets. Furthermore, I decompose sales into three components: customer base, prices, and quantities per customer. Almost all of the variation in brand sales, both across locations and over time, comes from the first term. The evidence suggests that geography plays a vital role in customer acquisition, but not due to differences in prices. Motivated by these findings, I propose a model in which information about brands' existence spreads geographically, similarly to how contagious diseases spread. Consumers aware of a brand might `infect' others with that knowledge, and the probability of contagion depends on their location. Additionally, brands have different costs to deliver their goods to different markets. I use the predictions for the correlation of brand sales and customer base across regions to estimate the model using Simulated Methods of Moments and find that information frictions are more severe between distant locations. Furthermore, eliminating the role of distance in contagion increases consumer welfare by 32.5%. These results highlight the importance of geography for the spread of information about brands. This relationship allows for the description of brand dynamics across space and has significant welfare implications. Chapter 2 studies the cross-section relations of sales and distance. How does distance affect the sales of brands in the United States? To answer that question, I use brand data across 44 different regions in the US. At the brand level, most of the effect of distance on sales is associated with a reduced number of customers in distant locations rather than sales per customer. At the aggregate level, most sales reduction comes from having fewer brands serving other areas. To understand what drives these patterns, I introduce a trade model between regions with shipping costs and search frictions between brands and final consumers. The estimates suggest that the shipping costs are a log-linear function of distance. However, information frictions are lower at the origin than at other destinations but are not affected by distance otherwise. Chapter 3 describes the post-entry dynamics of Brazilian exporters. This article documents post-entry sales dynamics of Brazilian exporters and how they can depend on the set of countries that they exported to in previous years. Controlling for marginal costs and selection on idiosyncratic demand, the results on firm's sales dynamics are similar to the ones in Fitzgerald for Irish firms, and are robust to the inclusion of destination-year controls. The main contribution of this article is to investigate how these dynamics are affected by the set of destinations served by the firm in the previous periods. The evidence collected here suggests that sales to destinations that are close to the ones that were previously served by the firm tend to be higher, to grow more, and that the firm is less likely to exit from those locations. These geographic spillovers seem to contribute to more successful endeavors, and to be economically relevant when describing the dynamics of exporters. Finally, the evidence suggests that these spillovers are correlated with higher idiosyncratic demand in those destinations, but are not associated with lower fixed and sunk costs individually faced by firms.

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