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Disentangling the firm growth process: evidence from a recursive panel VAR

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  • Alexander Coad

Abstract

We attempt to describe the coevolution of employment growth, sales growth and growth of profits in a panel of French manufacturing firms 1996-2004. Our analysis entails ‘recursive’ panel vector autoregressions, whereby we impose the structure of employment growth leading to contemporaneous sales growth, which in turn is associated with contemporaneous growth of profits. We observe that whilst employment growth has a direct negative association with profit growth, there are indirect effects through which employment growth leads to sales growth which in turn has a large effect on profits growth. The net effect of employment growth is thus positive growth of profits. Counter to some ‘replicator dynamics’ theories of industrial development, profit growth is not followed by much subsequent growth of employment.

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Paper provided by Philipps University Marburg, Department of Geography in its series Papers on Economics and Evolution with number 2007-15.

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Date of creation: Nov 2007
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Handle: RePEc:esi:evopap:2007-15

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Keywords: Firm Growth; Panel VAR; Recursive VAR; Employment Growth; Industrial Dynamics Length 15 pages;

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References

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  1. Alex Coad, 2007. "Exploring the "mechanics" of firm growth : evidence from a short-panel VAR," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers), HAL halshs-00175048, HAL.
  2. Michael Binder, Cheng Hsiao, and M. Hashem Pesaran, 2001. "Estimation and Inference in Short Panel Vector Autoregressions with Unit Roots and Cointegration," Computing in Economics and Finance 2001, Society for Computational Economics 36, Society for Computational Economics.
  3. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, Elsevier, vol. 87(1), pages 115-143, August.
  4. Giulio Bottazzi & Alex Coad & Nadia Jacoby & Angelo Secchi, 2005. "Corporate growth and industrial dynamics: evidence from french manufacturing," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers), HAL hal-00261616, HAL.
  5. Alexander Coad, 2007. "Firm Growth: A Survey," Papers on Economics and Evolution, Philipps University Marburg, Department of Geography 2007-03, Philipps University Marburg, Department of Geography.
  6. Alexander Coad & Rekha Rao, 2007. "Firm Growth and R&D Expenditure," Papers on Economics and Evolution, Philipps University Marburg, Department of Geography 2007-10, Philipps University Marburg, Department of Geography.
  7. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, Econometric Society, vol. 49(6), pages 1417-26, November.
  8. Steve Bond, 2002. "Dynamic panel data models: a guide to microdata methods and practice," CeMMAP working papers, Centre for Microdata Methods and Practice, Institute for Fiscal Studies CWP09/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  9. Michael P. Murray, 2006. "Avoiding Invalid Instruments and Coping with Weak Instruments," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 20(4), pages 111-132, Fall.
  10. Alex Coad, 2006. "A Closer Look at Serial Growth Rate Correlation," LEM Papers Series, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy 2006/29, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  11. Delmar, Frederic & Davidsson, Per & Gartner, William B., 2003. "Arriving at the high-growth firm," Journal of Business Venturing, Elsevier, vol. 18(2), pages 189-216, March.
  12. Coad, Alex, 2007. "Testing the principle of `growth of the fitter': The relationship between profits and firm growth," Structural Change and Economic Dynamics, Elsevier, Elsevier, vol. 18(3), pages 370-386, September.
  13. Stanca, Luca & Gallegati, Mauro, 1999. "The Dynamic Relation between Financial Positions and Investment: Evidence from Company Account Data," Industrial and Corporate Change, Oxford University Press, vol. 8(3), pages 551-72, September.
  14. Metcalfe, J S, 1994. "Competition, Fisher's Principle and Increasing Returns in the Selection Process," Journal of Evolutionary Economics, Springer, Springer, vol. 4(4), pages 327-46, November.
  15. Love, Inessa & Zicchino, Lea, 2006. "Financial development and dynamic investment behavior: Evidence from panel VAR," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 46(2), pages 190-210, May.
  16. James H. Stock & Mark W. Watson, 2001. "Vector Autoregressions," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 15(4), pages 101-115, Fall.
  17. Pavitt, Keith, 1984. "Sectoral patterns of technical change: Towards a taxonomy and a theory," Research Policy, Elsevier, Elsevier, vol. 13(6), pages 343-373, December.
  18. Geroski, Paul A, 1999. "The Growth of Firms in Theory and in Practice," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2092, C.E.P.R. Discussion Papers.
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