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Industry Dynamics and the Distribution of Firm Sizes: A Nonparametric Approach

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Author Info
Francesca Lotti () (Research Department, Bank of Italy)
Enrico Santarelli () (Department of Economics, University of Bologna)

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Abstract

The aim of this paper is to analyze the evolution of the size distribution of young firms within some selected industries, using as a background three theories of the distribution of firm sizes that identify a process of passive learning (Jovanovic 1982), one of active learning (Ericson and Pakes 1995), and an evolutionary one (Audretsch 1995) in the postentry dynamics of business firms. We use a nonparametric technique, the kernel density estimator, applied to a data set from the Italian National Institute for Social Security (INPS), consisting of 12 cohorts of new manufacturing firms that were followed on a quarterly base for six years. We find that firm size distribution is in general skewed to the right, although different industries display different paths and speeds of convergence toward the limit distribution. This finding is fairly consistent with theories allowing for industry heterogeneity in terms of structural and technological features, which, in turn, result in industry-specific evolution of the size distribution of new entrants.

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Publisher Info
Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 70 (2004)
Issue (Month): 3 (January)
Pages: 443-466
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Handle: RePEc:sej:ancoec:v:70:3:y:2004:p:443-466

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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.:
  1. Lotti, Francesca & Santarelli, Enrico & Vivarelli, Marco, 2001. "The Relationship between Size and Growth: The Case of Italian Newborn Firms," Applied Economics Letters, Taylor and Francis Journals, vol. 8(7), pages 451-54, July. [Downloadable!] (restricted)
  2. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Blackwell Publishing, vol. 62(1), pages 53-82, January. [Downloadable!] (restricted)
  3. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May. [Downloadable!] (restricted)
  4. Audretsch, David B. & Santarelli, Enrico & Vivarelli, Marco, 1999. "Start-up size and industrial dynamics: some evidence from Italian manufacturing," International Journal of Industrial Organization, Elsevier, vol. 17(7), pages 965-983, October. [Downloadable!] (restricted)
  5. John Sutton, 1997. "Gibrat's Legacy," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 40-59, March. [Downloadable!] (restricted)
  6. Cabral, Luís M B, 1997. "Entry Mistakes," CEPR Discussion Papers 1729, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  7. Pakes, Ariel & Ericson, Richard, 1998. "Empirical Implications of Alternative Models of Firm Dynamics," Journal of Economic Theory, Elsevier, vol. 79(1), pages 1-45, March. [Downloadable!] (restricted)
  8. Mata, Jose, 1994. " Firm Growth during Infancy," Small Business Economics, Springer, vol. 6(1), pages 27-39, February.
  9. L. A. N. Amaral & S. V. Buldyrev & S. Havlin & H. Leschhorn & P. Maass & M. A. Salinger & H. E. Stanley & M. H. R. Stanley, 1997. "Scaling behavior in economics: I. Empirical results for company growth," Quantitative Finance Papers cond-mat/9702082, arXiv.org. [Downloadable!]
  10. Jose A. F. Machado & Jose Mata, 2000. "Box-Cox quantile regression and the distribution of firm sizes," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(3), pages 253-274. [Downloadable!]
  11. Boeri, Tito & Bellmann, Lutz, 1995. "Post-entry behaviour and the cycle: Evidence from Germany," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 483-500, December. [Downloadable!] (restricted)
  12. Peter E. Hart, Nicholas Oulton, 1999. "Gibrat, Galton and Job Generation," International Journal of the Economics of Business, Taylor and Francis Journals, vol. 6(2), pages 149-164, July. [Downloadable!] (restricted)
  13. 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.
  14. Pakes, A. & Ericson, R., 1990. "Empirical Implications Of Alternative Models Of Firm Dynamics," Papers 594, Yale - Economic Growth Center.
    Other versions:
  15. Ijiri, Yuji & Simon, Herbert A, 1974. "Interpretations of Departures from the Pareto Curve Firm-Size Distributions," Journal of Political Economy, University of Chicago Press, vol. 82(2), pages 315-31, Part I, M. [Downloadable!] (restricted)
  16. Klepper, Steven & Miller, John H., 1995. "Entry, exit, and shakeouts in the United States in new manufactured products," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 567-591, December. [Downloadable!] (restricted)
  17. Geroski, P. A., 1995. "What do we know about entry?," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 421-440, December. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Elena Cefis & Orietta Marsili & Hans Schenk, 2009. "The effects of mergers and acquisitions on the firm size distribution," Journal of Evolutionary Economics, Springer, vol. 19(1), pages 1-20, February. [Downloadable!] (restricted)
    Other versions:
  2. Ana Sofia Domingues Rodrigues & Christopher A. Laincz, 2004. "Understanding the Variations in Gibrat's Law with a Markov-Perfect Dynamic Industry Model," Computing in Economics and Finance 2004 173, Society for Computational Economics. [Downloadable!]
  3. Emin Dinlersoz & Glenn MacDonald, 2009. "The Industry Life-Cycle of the Size Distribution of Firms," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(4), pages 648-667, October. [Downloadable!] (restricted)
    Other versions:
  4. Josep-Maria Arauzo-Carod & Agustí Segarra-Blasco, 2005. "The Determinants of Entry are not Independent of Start-up Size: Some Evidence from Spanish Manufacturing," Review of Industrial Organization, Springer, vol. 27(2), pages 147-165, 09. [Downloadable!] (restricted)
    Other versions:
  5. Glenn MacDonald & Emin Dinlersoz, 2005. "The Industry Life-Cycle of the Size Distribution of Firms," Working Papers 05-10, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
  6. Peter Huber & Michael Pfaffermayr, 2007. "The Anatomy of the Firm Size Distribution: The Evolution of its Variance and Skewness," WIFO Working Papers 295, WIFO. [Downloadable!]
  7. Paolo Angelini & Andrea Generale, 2005. "Firm Size Distribution: Do Financial Constraints Explain It All? Evidence From Survey Data," Temi di discussione (Economic working papers) 549, Bank of Italy, Economic Research Department. [Downloadable!]
  8. Enrico Santarelli & Francesca Lotti, 2005. "The Survival of Family Firms: The Importance of Control and Family Ties," International Journal of the Economics of Business, Taylor and Francis Journals, vol. 12(2), pages 183-192, July. [Downloadable!] (restricted)
    Other versions:
  9. Filipe Silva & Carlos Carreira, 2009. "No Deep Pockets: Some stylized results on firms' financial constraints," GEMF Working Papers 2009-06, GEMF - Faculdade de Economia, Universidade de Coimbra. [Downloadable!]
  10. Christopher A Laincz & Ana Sofia Domingues Rodrigues, . "A Theoretical Foundation for Understanding Firm Size Distributions and Gibrat's Law," Discussion Papers 05/34, Department of Economics, University of York. [Downloadable!]
  11. Roberto Leombruni, 2002. "Non Price Interaction and Business Fluctuations in an Agent Based Model of Firms’ Demography," LABORatorio R. Revelli Working Papers Series 17, LABORatorio R. Revelli, Centre for Employment Studies. [Downloadable!]
  12. Francesca Lotti & Marco Vivarelli & Enrico Santarelli, 2004. "Gibrat's Law and Market Selection," Papers on Entrepreneurship, Growth and Public Policy 2004-28, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group. [Downloadable!]
  13. Roberto Basile & Sergio de Nardis, 2004. "Non linearità e dinamica della dimensione d'impresa in Italia," ISAE Working Papers 40, ISAE - Institute for Studies and Economic Analyses - (Rome, ITALY). [Downloadable!]
    Other versions:
  14. Luís Cabral, 2007. "Small firms in Portugal: a selective survey of stylized facts, economic analysis, and policy implications," Portuguese Economic Journal, Springer, vol. 6(1), pages 65-88, April. [Downloadable!] (restricted)
  15. Qi Li & Patrick Paul Walsh, 2009. "The Firm Size Distribution in a Small Open Economy: Theory and Evidence," Working Papers 200920, Geary Institute, University College Dublin. [Downloadable!]
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