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Firm Size Distribution and Growth

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Author Info
Patrizio Pagano () (Bank of Italy, Economic Research Department)
Fabiano Schivardi () (Bank of Italy, Economic Research Department)

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Abstract

We empirically characterize the sectoral distribution of firm size for a set of European countries, finding substantial differences. We then study the relationship between productivity growth at the sectoral level and size structure. We find a positive and robust association between average firm size and growth. Asking why size should matter for growth, we consider the role of innovative activity, to construct a test based on the differential effect of size on growth according to various indicators of R&D intensity at the sectoral level. Our results indicate that larger size fosters productivity growth because it allows firms to take advantage of all the increasing returns associated with R&D. We finally argue that our test can be interpreted as a test of reverse causality, which lends support to the view of firm size having a causal impact on growth.

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Paper provided by Bank of Italy, Economic Research Department in its series Temi di discussione (Economic working papers) with number 394.

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Date of creation: Feb 2001
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Handle: RePEc:bdi:wptemi:td_394_01

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Related research
Keywords: firm size; growth; R&; D.;

Other versions of this item:

Find related papers by JEL classification:
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
O30 - Economic Development, Technological Change, and Growth - - Technological Change - - - General
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

References listed on IDEAS
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    Other versions:
  2. Davis, Steven J & Haltiwanger, John & Schuh, Scott, 1996. " Small Business and Job Creation: Dissecting the Myth and Reassessing the Facts," Small Business Economics, Springer, vol. 8(4), pages 297-315, August.
    Other versions:
  3. Budd, Christopher & Harris, Christopher & Vickers, John, 1993. "A Model of the Evolution of Duopoly: Does the Asymmetry between Firms Tend to Increase or Decrease?," Review of Economic Studies, Blackwell Publishing, vol. 60(3), pages 543-73, July. [Downloadable!] (restricted)
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  5. Peretto, Pietro F, 1998. " Technological Change, Market Rivalry, and the Evolution of the Capitalist Engine of Growth," Journal of Economic Growth, Springer, vol. 3(1), pages 53-80, March. [Downloadable!] (restricted)
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  9. ?gel de la Fuente & Rafael Dom?ech, . "Human Capital In Growth Regressions: How Much Difference Does Data Quality Make?," UFAE and IAE Working Papers 446.00, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC). [Downloadable!]
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  10. Bernard, Andrew B & Jones, Charles I, 1996. "Comparing Apples to Oranges: Productivity Convergence and Measurement across Industries and Countries," American Economic Review, American Economic Association, vol. 86(5), pages 1216-38, December. [Downloadable!] (restricted)
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  15. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn. [Downloadable!] (restricted)
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    Other versions:
  18. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October. [Downloadable!] (restricted)
    Other versions:
  19. Peretto, Pietro F., 1999. "Firm size, rivalry and the extent of the market in endogenous technological change," European Economic Review, Elsevier, vol. 43(9), pages 1747-1773, October. [Downloadable!] (restricted)
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