Income Shocks and Firm Size in India
Published in Data work ongoing, 2023
with Andreas Menzel
Abstract
This paper examines whether medium-run demand shocks lead to sustained changes in firm size. We exploit exogenous fluctuations in agricultural output driven by rainfall variation to identify demand shocks to local village economies. Combining firm and household survey data with geographically detailed crop production, we show that favorable rainfall periods generate positive demand shocks that increase firm size, raise household consumption, and improve local economic outcomes.