This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Understanding the Variations in Gibrat's Law with a Markov-Perfect Dynamic Industry Model

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Ana Sofia Domingues Rodrigues
Christopher A. Laincz
Abstract

Gibrat's Law of proportionate effect, as applied to firms, states that the growth rate of a firm is independent of its size. Empirical work on firm dynamics finds crucial deviations from Gibrat's Law such as smaller firms growing faster than larger firms (Evans, 1987, and Hall, 1987), a negative relationship between the variance of growth rates and size (Dunne and Hughes, 1994), and first-order positive autocorrelation in the growth rates (Kumar, 1995). Moreover, the degree of deviation from Gibrat's Law varies across industries. This paper contributes to our understanding of the forces that make Gibrat's Law a close, but imperfect approximation of firm size distributions and seeks to determine potential sources of cross-industry variation. Here, we employ an extension of the Ericson-Pakes (1995) theoretical framework that allows for firm growth developed by Laincz (2004a). By varying key parameters, the simulations demonstrate potential sources for the various, and sometimes conflicting, results on Gibrat's Law uncovered in the empirical literature

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://repec.org/sce2004/up.8078.1077830248.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2004 with number 173.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: 11 Aug 2004
Date of revision:
Handle: RePEc:sce:scecf4:173

Contact details of provider:
Email:
Web page: http://comp-econ.org/
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Christopher F. Baum).

Related research
Keywords: Gibrat's Law; Firm Size Distribution; Entry; Exit;

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
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

This paper has been announced in the following NEP Reports:

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. Mansfield, Edwin, 1985. "How Rapidly Does New Industrial Technology Leak Out?," Journal of Industrial Economics, Blackwell Publishing, vol. 34(2), pages 217-23, December. [Downloadable!] (restricted)
  2. McCloughan, Patrick, 1995. "Simulation of Concentration Development from Modified Gibrat Growth-Entry-Exit Processes," Journal of Industrial Economics, Blackwell Publishing, vol. 43(4), pages 405-33, December. [Downloadable!] (restricted)
  3. Francesca Lotti & Enrico Santarelli, 2001. "Industry Dynamics and the Distribution of Firm Sizes: A Non-Parametric Approach," LEM Papers Series 2001/14, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy. [Downloadable!]
    Other versions:
  4. Mansfield, Edwin & Schwartz, Mark & Wagner, Samuel, 1981. "Imitation Costs and Patents: An Empirical Study," Economic Journal, Royal Economic Society, vol. 91(364), pages 907-18, December. [Downloadable!] (restricted)
  5. 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:
  6. Kumar, M S, 1985. "Growth, Acquisition Activity and Firm Size: Evidence from the United Kingdom," Journal of Industrial Economics, Blackwell Publishing, vol. 33(3), pages 327-38, March. [Downloadable!] (restricted)
  7. 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)
  8. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May. [Downloadable!] (restricted)
  9. John Sutton, 1997. "Gibrat's Legacy," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 40-59, March. [Downloadable!] (restricted)
  10. Hart, Peter E & Oulton, Nicholas, 1996. "Growth and Size of Firms," Economic Journal, Royal Economic Society, vol. 106(438), pages 1242-52, September. [Downloadable!] (restricted)
    Other versions:
  11. D.B. Audretsch & L. Klomp & E. Santarelli & A.R. Thurik, 2004. "Gibrat's Law: Are the Services Different?," Review of Industrial Organization, Springer, vol. 24(3), pages 301-324, 05. [Downloadable!]
    Other versions:
  12. Evans, David S, 1987. "The Relationship between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries," Journal of Industrial Economics, Blackwell Publishing, vol. 35(4), pages 567-81, June. [Downloadable!] (restricted)
    Other versions:
  13. 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!]
  14. Singh, Ajit & Whittington, Geoffrey, 1975. "The Size and Growth of Firms," Review of Economic Studies, Blackwell Publishing, vol. 42(1), pages 15-26, January. [Downloadable!] (restricted)
Full references

Statistics
Access and download statistics

Did you know? Over 80% of the top 1000 economists are registered on RePEc.

This page was last updated on 2009-12-23.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.