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Innovation and Corporate Dynamics: A Theoretical Framework

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  • Massimo, Riccaboni
  • Jakub, Growiec
  • Fabio, Pammolli

Abstract

We provide a detailed analysis of a generalized proportional growth model (GPGM) of innovation and corporate dynamics that encompasses the Gibrat’s Law of Proportionate Effect and the Simon growth process as particular instances. The predictions of the model are derived in terms of (i) firm size distribution, (ii) the distribution of firm growth rates, and (iii-iv) the relationships between firm size and the mean and variance of firm growth rates. We test the model against data from the worldwide pharmaceutical industry and find its predictions to be in good agreement with empirical evidence on all four dimensions.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 30046.

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Date of creation: 26 Mar 2011
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Handle: RePEc:pra:mprapa:30046

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Keywords: Business firm size; firm growth distribution; Gibrat’s Law; Pareto distribution; lognormal distribution; size-variance relationship.;

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