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The Growth of Business Firms: Theoretical Framework and Empirical Evidence

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Author Info
Fu, Dongfeng
Pammolli, Fabio
Buldyrev, Sergey V.
Riccaboni, Massimo
Matia, Kaushik
Yamasaki, Kazuko
Stanley, H. Eugene

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Abstract

We introduce a model of proportional growth to explain the distribution of business firm growth rates. The model predicts that it is exponential in the central part and depicts an asymptotic power-law behavior in the tails with an exponent ζ = 3. Because of data limitations, previous studies in this field have been focusing exclusively on the Laplace shape of the body of the distribution. In this article, we test the model at different levels of aggregation in the economy, from products to firms to countries, and we find that the model’s predictions agree with empirical growth distributions and size-variance relationships.

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File URL: http://mpra.ub.uni-muenchen.de/15905/
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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15905.

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Date of creation: 2005
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Publication status: Published in Proceedings of the National Academy of Sciences 52.102(2005): pp. 18801-18806
Handle: RePEc:pra:mprapa:15905

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Related research
Keywords: proportional growth; preferential attachment; Laplace distribution;

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Find related papers by JEL classification:
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
D39 - Microeconomics - - Distribution - - - Other
E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth
L00 - Industrial Organization - - General - - - General
L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology
L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation

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. Stephen Hymer & Peter Pashigian, 1962. "Firm Size and Rate of Growth," Journal of Political Economy, University of Chicago Press, vol. 70, pages 556. [Downloadable!] (restricted)
  2. Bottazzi, Giulio & Dosi, Giovanni & Lippi, Marco & Pammolli, Fabio & Riccaboni, Massimo, 2001. "Innovation and corporate growth in the evolution of the drug industry," International Journal of Industrial Organization, Elsevier, vol. 19(7), pages 1161-1187, July. [Downloadable!] (restricted)
    Other versions:
  3. Hall, Bronwyn H, 1987. "The Relationship between Firm Size and Firm Growth in the U.S. Manufacturing Sector," Journal of Industrial Economics, Blackwell Publishing, vol. 35(4), pages 583-606, June. [Downloadable!] (restricted)
    Other versions:
  4. Canning, D. & Amaral, L. A. N. & Lee, Y. & Meyer, M. & Stanley, H. E., 1998. "Scaling the volatility of GDP growth rates," Economics Letters, Elsevier, vol. 60(3), pages 335-341, September. [Downloadable!] (restricted)
  5. De Fabritiis, Gianni & Riccaboni, Massimo & Pammolli, Fabio, 2003. "On Size and Growth of Business Firms," MPRA Paper 15866, University Library of Munich, Germany. [Downloadable!]
  6. Youngki Lee & Luis A. N. Amaral & David Canning & Martin Meyer & H. Eugene Stanley, 1998. "Universal features in the growth dynamics of complex organizations," Quantitative Finance Papers cond-mat/9804100, arXiv.org. [Downloadable!]
  7. Xavier Gabaix, 1999. "Zipf'S Law For Cities: An Explanation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 739-767, August. [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. Marco Corsino & Roberto Gabriele & Enrico Zaninotto, 2008. "Organizational capabilities and industry dynamics: a computational model," DISA Working Papers 0809, Department of Computer and Management Sciences, University of Trento, Italy, revised 18 Nov 2008. [Downloadable!]
    Other versions:
  2. Massimo Riccaboni & Stefano Schiavo, 2009. "The Structure and Growth of Weighted Networks," Quantitative Finance Papers 0908.0348, arXiv.org, revised Oct 2009. [Downloadable!]
  3. Wright, Ian, 2008. "Implicit Microfoundations for Macroeconomics," Economics Discussion Papers 2008-41, Kiel Institute for the World Economy. [Downloadable!]
    Other versions:
  4. Giorgio Fagiolo & Mauro Napoletano & Andrea Roventini, 2008. "Are output growth-rate distributions fat-tailed? some evidence from OECD countries," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(5), pages 639-669. [Downloadable!]
    Other versions:
  5. Alex Coad & Werner Hölzl, 2009. "On the Autocorrelation of Growth Rates," Journal of Industry, Competition and Trade, Springer, vol. 9(2), pages 139-166, June. [Downloadable!] (restricted)
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