The Department of Economics’ Anubha Agarwal is examining an understudied aspect of how firms expand into multiple geographic markets. The PhD candidate’s study looks at how the number of geographic markets of firms in non-tradable sectors and competition in local markets increased in Canada between 2001-2018. Using her model, she finds that the rise in the innovation costs for entrepreneurs, compositional changes in entrants, and the increase in product differentiation between local varieties can explain most of these empirical trends. The study also finds that subsidizing the geographic expansion of more productive and more expansion-efficient firms can increase social welfare and efficiency in the economy.
“Firms can grow within a market by increasing their size, but my focus is on how firms grow by entering multiple geographic markets. Growth in geographic markets is important for firms in non-tradable goods and services sectors, like coffee shops or financial services that require physical presence near customers,” Agarwal said.
In her model, Agarwal captured the fact that local businesses have distinct advantages working within local markets, so it makes sense for them to invest in expanding their presence in a greater number of local geographic markets to access more customers.
“Geographic expansion of firms can have both benefits and costs for an economy,” Agarwal explained. “This is something we can’t fully understand by only looking at the data, hence my theoretical framework helps us understand the different aspects of geographic expansion.”
To conduct her research, Agarwal gained access to confidential Canadian microdata on firms and workers. The data covers all firms in Canada that file taxes and consists of linkable files collected from various sources every year.
“For each firm, I observed their headquarter location and economic variables such as sales and revenue. I also observed which workers they employed during the year,” Agarwal said. “I realized that firms’ geographic expansion is closely related to local market power. I gained access to data that, while not perfect in terms of direct information on establishments, provided the ingredients I needed. I started working with the data and became interested in firms’ geographic expansion and its consequences for outcomes such as local market power, output, and welfare.”
Her research highlights the importance of understanding firms’ geographic expansion decisions in evaluating antitrust policies.
“I find that in terms of policy makers’ incentives, they have incentives to subsidize the expansion of the most productive and the most expansion-efficient firms because these are firms whose expansion benefits the economy more than it costs the economy in terms of getting more varieties in the market, improving the market’s average productivity, and increasing local competition,” Agarwal said. “On the other hand, we want to tax the other firms that are not so efficient and not so productive because their expansion is not that beneficial to the economy overall.”
Agarwal credits one experience with helping her to better explain her research and carefully define and redefine her questions: teaching. A teaching assistant for undergraduate international trade theory with Professor Peter Morrow, Agarwal has learned much about communication and transferred those lessons to her students.
“For me, the most important thing is having a connection with the students, making them feel comfortable speaking up and asking questions,” she said. “In my experience, a lot of students hesitate to ask even basic questions because they’re scared of what their peers or the instructors might think. My focus is on ensuring students feel comfortable and included in the discussion. I try my best to maintain eye contact and pay attention to their facial expressions, and if I sense any hesitation, I lighten the mood with a joke to make them feel more at ease. Making students feel that they are important in the learning process is crucial.”
Her effort in leading tutorials is obvious to those who work with Agarwal.
“Anubha has been an absolute delight,” said Professor Morrow. “She is a dedicated teacher who is always thinking about her students’ well-being while pushing them to be their best selves.”
Agarwal’s dedication to others’ well-being extends beyond her research and teaching responsibilities. She has taken a leadership role in supporting other PhD students and in nurturing an open and responsive culture among graduate students in the Department of Economics.
“As I progressed in my PhD, I made a concerted effort to foster an inclusive environment where both my peers and juniors felt comfortable discussing the challenges of being a graduate student in economics. I believe that this is a crucial aspect of community building within the department,” she said. “I have also learnt a lot from my professors in the department, especially those in the macro group. They have given me a lot of positivity and support over the years, and I am very thankful for that.”
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