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Diversity of firm sizes, complexity, and industry structure in the Chinese economy

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  • Heinrich, Torsten
  • Dai, Shuanping

Abstract

Among the phenomena in economics that are not yet well-understood is the fat-tailed (power-law) distribution of firm sizes in the world's economies. In the present paper we discuss different mechanisms suggested in the literature to explain this distribution of firm sizes. The paper uses the China Industrial Enterprises Database to study the distribution (firm size in terms of the number of employees, capital, and gross profit) for the provinces of China for the years 1998–2008. We estimate the power-law distribution and confirm its plausibility using the KS test and the log-likelihood ratio vs. lognormal and exponential distributions. The analysis on regional levels allows an assessment of regional effects on differences in the distribution; we discuss possible explanations for the observed patterns in the light of the recent regional economic development and the economic reforms in the PRC.

Suggested Citation

  • Heinrich, Torsten & Dai, Shuanping, 2016. "Diversity of firm sizes, complexity, and industry structure in the Chinese economy," Structural Change and Economic Dynamics, Elsevier, vol. 37(C), pages 90-106.
    • Handle: RePEc:eee:streco:v:37:y:2016:i:c:p:90-106
    DOI: 10.1016/j.strueco.2016.01.001
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    Cited by:

    1. Lina Cortés & Juan M. Lozada & Javier Perote, 2019. "Firm size and concentration inequality: A flexible extension of Gibrat’s law," Documentos de Trabajo de Valor Público 17205, Universidad EAFIT.
    2. Heinrich, Torsten & Yang, Jangho & Dai, Shuanping, 2020. "Growth, development, and structural change at the firm-level: The example of the PR China," MPRA Paper 105011, University Library of Munich, Germany.
    3. Cortés, Lina M. & Mora-Valencia, Andrés & Perote, Javier, 2017. "Measuring firm size distribution with semi-nonparametric densities," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 485(C), pages 35-47.
    4. Lina M Cortés & Juan M Lozada & Javier Perote, 2021. "Firm size and economic concentration: An analysis from a lognormal expansion," PLOS ONE, Public Library of Science, vol. 16(7), pages 1-21, July.
    5. Montebruno, Piero & Bennett, Robert J. & van Lieshout, Carry & Smith, Harry, 2019. "A tale of two tails: Do Power Law and Lognormal models fit firm-size distributions in the mid-Victorian era?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 523(C), pages 858-875.
    6. Jan Schulz & Daniel M. Mayerhoffer, 2021. "Equal chances, unequal outcomes? Network-based evolutionary learning and the industrial dynamics of superstar firms," Journal of Business Economics, Springer, vol. 91(9), pages 1357-1385, November.
    7. Vitezić Vanja & Srhoj Stjepan & Perić Marko, 2018. "Investigating Industry Dynamics in a Recessionary Transition Economy," South East European Journal of Economics and Business, Sciendo, vol. 13(1), pages 43-67, June.
    8. Heinrich, Torsten, 2016. "The Narrow and the Broad Approach to Evolutionary Modeling in Economics," MPRA Paper 75797, University Library of Munich, Germany.
    9. Torsten Heinrich & Jangho Yang & Shuanping Dai, 2020. "Levels of structural change: An analysis of China's development push 1998-2014," Papers 2005.01882, arXiv.org, revised Sep 2020.
    10. Torsten Heinrich & Jangho Yang & Shuanping Dai, 2022. "Levels of structural change," Journal of Evolutionary Economics, Springer, vol. 32(1), pages 35-86, January.
    11. Boachie, Christopher & Mensah, Emmanuel, 2022. "The effect of earnings management on firm performance: The moderating role of corporate governance quality," International Review of Financial Analysis, Elsevier, vol. 83(C).

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    More about this item

    Keywords

    Firm size distribution; Evolutionary industry dynamics; Power-law distribution; China;
    All these keywords.

    JEL classification:

    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary; Modern Monetary Theory;
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • N15 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Asia including Middle East

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