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On the Evolution of the Firm Size Distribution: Facts and Theory

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  • Luís M B Cabral
  • José Mata

Abstract

Using a comprehensive data set of Portuguese manufacturing firms, we show that the firm size distribution is significantly right-skewed, evolving over time toward a lognormal distribution. We also show that selection accounts for very little of this evolution. Instead, we propose a simple theory based on financing constraints. A calibrated version of our model does a good job at explaining the evolution of the firm size distribution. (JEL L11)

Suggested Citation

  • Luís M B Cabral & José Mata, 2003. "On the Evolution of the Firm Size Distribution: Facts and Theory," American Economic Review, American Economic Association, vol. 93(4), pages 1075-1090, September.
  • Handle: RePEc:aea:aecrev:v:93:y:2003:i:4:p:1075-1090
    Note: DOI: 10.1257/000282803769206205
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    References listed on IDEAS

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    1. Richard Ericson & Ariel Pakes, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Oxford University Press, vol. 62(1), pages 53-82.
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    JEL classification:

    • L00 - Industrial Organization - - General - - - General

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