Big Fish in a Small Pond : Locally-Dominant Firms and the Business Cycle

Following Gabaix (2011), we identify locally-dominant firms that have a strong impact on their local macroeconomic environment, but are not among the largest 100 U.S. firms. Idiosyncratic shocks to these locally-dominant firms also propagate nationally and explain a significant portion of aggregate U.S.\ macroeconomic fluctuations. Specifically, we find that locally-dominant firms exist in 13 U.S. states and productivity shocks to these firms explain almost 50% of the U.S. GDP growth