On the relationship between firms' size and growth rate

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On the relationship between firms' size and growth rate

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Giulio Bottazzi () (Scuola Superiore Sant'Anna)

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Giulio Bottazzi

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.

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Article provided by Economics Bulletin in its journal Economics Bulletin.

Volume (Year): 3 (2008)
Issue (Month): 8 ()
Pages: 1-7
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Handle: RePEc:ebl:ecbull:v:3:y:2008:i:8:p:1-7

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Find related papers by JEL classification:
C0 - Mathematical and Quantitative Methods - - General
D2 - Microeconomics - - Production and Organizations

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Giulio Bottazzi & Angelo Secchi, 2005. "Explaining the Distribution of Firms Growth Rates," LEM Papers Series 2005/16, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy. [Downloadable!]
Other versions:
- Giulio Bottazzi & Angelo Secchi, 2006. "Explaining the Distribution of Firm Growth Rates," RAND Journal of Economics, The RAND Corporation, vol. 37(2), pages 235-256, Summer.
Brock, W A, 1999. "Scaling in Economics: A Reader's Guide," Industrial and Corporate Change, Oxford University Press, vol. 8(3), pages 409-46, September.
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. [Downloadable!] (restricted)

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This page was last updated on 2009-12-12.

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