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The Firm Size Distribution and Inter-Industry Diversification

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  • John Hutchinson

    (European Central Bank)

  • Jozef Konings

    (Economics Department, K.U. Leuven)

  • Patrick Paul Walsh

    (SPIRe and The Geary Institute University College Dublin)

Abstract

We show that the stylized facts of the Firm Size Distribution (FSD) by age cohorts, as shown in Cabral and Mata (2003), bind within 4-digit manufacturing industries in the UK and Belgium. As in Klepper and Thompson (2006) and Sutton (1998), we explore whether time to build a portfolio of products is a mechanism that relates age to firm size. While inter industry diversification, to some extent, accounts for the role of age, we find that the presence of economies of scope has a separate impact on firm size when controlling for age, amongst other factors. Using the techniques in Cabral and Mata's we show that the FSD by degrees of product diversification shifts to the right, but more so in older age groups. This shows a role for inter-industry diversification over and above an age effect.

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File URL: http://www.ucd.ie/geary/static/publications/workingpapers/gearywp200926.pdf
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Bibliographic Info

Paper provided by Geary Institute, University College Dublin in its series Working Papers with number 200926.

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Length: 28 pages
Date of creation: 25 Aug 2009
Date of revision:
Handle: RePEc:ucd:wpaper:200926

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  1. Buzzacchi, Luigi & Valletti, Tommaso, 2002. "Firm Size Distribution: Testing the 'Independent Submarkets Model' in the Italian Motor Insurance Industry," CEPR Discussion Papers 3444, C.E.P.R. Discussion Papers.
  2. Paolo Angelini & Andrea Generale, 2008. "On the Evolution of Firm Size Distributions," American Economic Review, American Economic Association, vol. 98(1), pages 426-38, March.
  3. Nocke, Volker & Yeaple, Stephen R, 2008. "Globalization and the Size Distribution of Multiproduct Firms," CEPR Discussion Papers 6948, C.E.P.R. Discussion Papers.
  4. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
  5. Schmalensee, Richard., 1987. "Inter-industry studies of structure and performance," Working papers 1874-87., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  6. Bernard, Andrew B. & Redding, Stephen & Schott, Peter K., 2010. "Multiple-product firms and product switching," Open Access publications from London School of Economics and Political Science http://eprints.lse.ac.uk/, London School of Economics and Political Science.
  7. Franco Mariuzzo & Patrick Paul Walsh & Ciara Whelan, 2003. "Firm Size and Market Power in Carbonated Soft Drinks," Review of Industrial Organization, Springer, vol. 23(3_4), pages 283-299, December.
  8. Cabral, Luís M B & Mata, José, 2001. "On the Evolution of the Firm Size Distribution: Facts and Theory," CEPR Discussion Papers 3045, C.E.P.R. Discussion Papers.
  9. Dunne, Timothy & Roberts, Mark J & Samuelson, Larry, 1989. "The Growth and Failure of U.S. Manufacturing Plants," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 671-98, November.
  10. Walsh, Patrick P. & Whelan, Ciara, 2002. "Portfolio effects and firm size distribution : carbonated soft drinks," Open Access publications from University College Dublin urn:hdl:10197/130, University College Dublin.
  11. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  12. Peter Thompson & Steven Klepper, 2003. "Submarkets and the Evolution of Market Structure," Working Papers 0303, Florida International University, Department of Economics.
  13. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2006. "Multi-Product Firms and Trade Liberalization," NBER Working Papers 12782, National Bureau of Economic Research, Inc.
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