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On the relationship between firms' size and growth rate

Author

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  • Giulio Bottazzi

    (Scuola Superiore Sant'Anna)

Abstract

Since the seminal work of Pareto, many empirical analyses suggestedthat the distribution of firms size is characterized by an asymptoticpower like behavior. At the same time, several investigations showthat the distribution of annual growth rates of firms displays aremarkable double-exponential shape. Recently it has been suggestedthat both these statistical properties can be explained by assuming abivariate Marshall-Olkin power-like distribution for the size of firmsin subsequent time steps. Through analytical investigation, I showthat the marginal distribution of growth rates implied by thisassumption does not possess, in general, a Laplace shape and becomesdegenerate when subsequent size levels are perfectly correlated. Assuch, the bivariate Marshall-Olkin distribution is unable to properlyaccount for the observed regularities. The original suggestion isfaulty as it treats firm size levels as stationary stochasticvariables and neglects their integrated nature.

Suggested Citation

  • Giulio Bottazzi, 2008. "On the relationship between firms' size and growth rate," Economics Bulletin, AccessEcon, vol. 3(8), pages 1-7.
    • Handle: RePEc:ebl:ecbull:eb-07c00002
    as

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    References listed on IDEAS

    as
    1. Giulio Bottazzi & Angelo Secchi, 2006. "Explaining the distribution of firm growth rates," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 235-256, June.
    2. Palestrini, Antonio, 2007. "Analysis of industrial dynamics: A note on the relationship between firms' size and growth rate," Economics Letters, Elsevier, vol. 94(3), pages 367-371, March.
    3. Brock, W A, 1999. "Scaling in Economics: A Reader's Guide," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 8(3), pages 409-446, September.
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    Cited by:

    1. Cirillo, Pasquale & Hüsler, Jürg, 2009. "On the upper tail of Italian firms’ size distribution," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(8), pages 1546-1554.

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    More about this item

    Keywords

    Firm Growth;

    JEL classification:

    • C0 - Mathematical and Quantitative Methods - - General
    • D2 - Microeconomics - - Production and Organizations

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