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Establishment Size Dynamics in the Aggregate Economy

Author

Listed:
  • Esteban Rossi-Hansberg
  • Mark L. J. Wright

Abstract

This paper presents a theory of establishment size dynamics based on the accumulation of industry-specific human capital that simultaneously rationalizes the economy- wide facts on establishment growth rates, exit rates, and size distributions. The theory predicts that establishment growth and net exit rates should decline faster with size, and that the establishment size distribution should have thinner tails, in sectors that use specific human capital less intensively. We establish that there is substantial cross-sector heterogeneity in US establishment size dynamics and distributions, which is well explained by relative factor intensities. (JEL L11 , L16, L25).

Suggested Citation

  • Esteban Rossi-Hansberg & Mark L. J. Wright, 2007. "Establishment Size Dynamics in the Aggregate Economy," American Economic Review, American Economic Association, vol. 97(5), pages 1639-1666, December.
  • Handle: RePEc:aea:aecrev:v:97:y:2007:i:5:p:1639-1666
    Note: DOI: 10.1257/aer.97.5.1639
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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