IDEAS home Printed from https://ideas.repec.org/a/aea/aejmac/v10y2018i3p1-41.html
   My bibliography  Save this article

The Firm Size Distribution across Countries and Skill-Biased Change in Entrepreneurial Technology

Author

Listed:
  • Markus Poschke

Abstract

Development is associated with systematic changes in the firm size distribution. I document that the mean and dispersion of firm size are larger in rich countries, and increased over time for US firms. To analyze the firm size-development link, I construct a frictionless general equilibrium model of occupational choice with skill-biased change in entrepreneurial technology (i.e., technical progress favors better entrepreneurs). The model accounts for key aspects of the US experience with only changes in aggregate technology. It attributes half the variation in mean and dispersion of firm size across countries to technical change. Distortions also affect the size distribution.

Suggested Citation

  • Markus Poschke, 2018. "The Firm Size Distribution across Countries and Skill-Biased Change in Entrepreneurial Technology," American Economic Journal: Macroeconomics, American Economic Association, vol. 10(3), pages 1-41, July.
  • Handle: RePEc:aea:aejmac:v:10:y:2018:i:3:p:1-41
    Note: DOI: 10.1257/mac.20140181
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/doi/10.1257/mac.20140181
    Download Restriction: no

    File URL: https://www.aeaweb.org/articles/attachments?retrieve=1hVliFo1iUeHrqaPIGMoZ635IvT86KI8
    Download Restriction: no

    File URL: https://www.aeaweb.org/articles/attachments?retrieve=wC2lNR_VIlWsZ95_MseB5sGtK_4HZ2Qu
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.

    Other versions of this item:

    References listed on IDEAS

    as
    1. James R. Tybout, 2000. "Manufacturing Firms in Developing Countries: How Well Do They Do, and Why?," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 11-44, March.
    2. Giulia Faggio & Kjell G. Salvanes & John Van Reenen, 2010. "The evolution of inequality in productivity and wages: panel data evidence," Industrial and Corporate Change, Oxford University Press, vol. 19(6), pages 1919-1951, December.
    3. Per Krusell & Lee E. Ohanian & JosÈ-Victor RÌos-Rull & Giovanni L. Violante, 2000. "Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis," Econometrica, Econometric Society, vol. 68(5), pages 1029-1054, September.
    4. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1991. "The Allocation of Talent: Implications for Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 503-530.
    5. Marco Cagetti & Mariacristina De Nardi, 2006. "Entrepreneurship, Frictions, and Wealth," Journal of Political Economy, University of Chicago Press, vol. 114(5), pages 835-870, October.
    6. Paul Reynolds & Niels Bosma & Erkko Autio & Steve Hunt & Natalie De Bono & Isabel Servais & Paloma Lopez-Garcia & Nancy Chin, 2005. "Global Entrepreneurship Monitor: Data Collection Design and Implementation 1998–2003," Small Business Economics, Springer, vol. 24(3), pages 205-231, February.
    7. Giuseppe Moscarini & Fabien Postel-Vinay, 2009. "Large Employers Are More Cyclically Sensitive," NBER Working Papers 14740, National Bureau of Economic Research, Inc.
    8. Francisco J. Buera & Joseph P. Kaboski & Yongseok Shin, 2011. "Finance and Development: A Tale of Two Sectors," American Economic Review, American Economic Association, vol. 101(5), pages 1964-2002, August.
    9. Poschke, Markus, 2013. "Who becomes an entrepreneur? Labor market prospects and occupational choice," Journal of Economic Dynamics and Control, Elsevier, vol. 37(3), pages 693-710.
    10. Nicholas Bloom & Raffaella Sadun & John Van Reenen, 2012. "Americans Do IT Better: US Multinationals and the Productivity Miracle," American Economic Review, American Economic Association, vol. 102(1), pages 167-201, February.
    11. Xavier Gabaix & Augustin Landier, 2008. "Why has CEO Pay Increased So Much?," The Quarterly Journal of Economics, Oxford University Press, vol. 123(1), pages 49-100.
    12. Thomas Åstebro & Jing Chen & Peter Thompson, 2011. "Stars and Misfits: Self-Employment and Labor Market Frictions," Management Science, INFORMS, vol. 57(11), pages 1999-2017, November.
    13. Laura Alfaro & Andrew Charlton & Fabio Kanczuk, 2009. "Plant-Size Distribution and Cross-Country Income Differences," NBER Chapters,in: NBER International Seminar on Macroeconomics 2008, pages 243-272 National Bureau of Economic Research, Inc.
    14. Lawrence F. Katz & Kevin M. Murphy, 1992. "Changes in Relative Wages, 1963–1987: Supply and Demand Factors," The Quarterly Journal of Economics, Oxford University Press, vol. 107(1), pages 35-78.
    15. Huw Lloyd-Ellis & Dan Bernhardt, 2000. "Enterprise, Inequality and Economic Development," Review of Economic Studies, Oxford University Press, vol. 67(1), pages 147-168.
    16. García-Santana, Manuel & Pijoan-Mas, Josep, 2014. "The reservation laws in India and the misallocation of production factors," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 193-209.
    17. Rajan, Raghuram G. & Wulf, Julie, 2006. "Are perks purely managerial excess?," Journal of Financial Economics, Elsevier, vol. 79(1), pages 1-33, January.
    18. Hernan Moscoso Boedo & Toshihiko Mukoyama, 2012. "Evaluating the effects of entry regulations and firing costs on international income differences," Journal of Economic Growth, Springer, vol. 17(2), pages 143-170, June.
    19. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains From Variety," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 541-585.
    20. Poschke, Markus, 2013. "The Decision to Become an Entrepreneur and the Firm Size Distribution: A Unifying Framework for Policy Analysis," IZA Discussion Papers 7757, Institute for the Study of Labor (IZA).
    21. Markus Poschke, 2010. "The Regulation of Entry and Aggregate Productivity," Economic Journal, Royal Economic Society, vol. 120(549), pages 1175-1200, December.
    22. Levon Barseghyan, 2008. "Entry costs and cross-country differences in productivity and output," Journal of Economic Growth, Springer, vol. 13(2), pages 145-167, June.
    23. Berry, Albert & Rodriguez, Edgard & Sandee, Henry, 2002. "Firm and Group Dynamics in the Small and Medium Enterprise Sector in Indonesia," Small Business Economics, Springer, vol. 18(1-3), pages 141-161, Feb.- May.
    24. Michaels, Guy, 2007. "The Division of Labour, Coordination, and the Demand for Information Processing," CEPR Discussion Papers 6358, C.E.P.R. Discussion Papers.
    25. Silvia Ardagna & Annamaria Lusardi, 2010. "Explaining International Differences in Entrepreneurship: The Role of Individual Characteristics and Regulatory Constraints," NBER Chapters,in: International Differences in Entrepreneurship, pages 17-62 National Bureau of Economic Research, Inc.
    26. Restuccia, Diego & Yang, Dennis Tao & Zhu, Xiaodong, 2008. "Agriculture and aggregate productivity: A quantitative cross-country analysis," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 234-250, March.
    27. Evans, David S & Leighton, Linda S, 1989. "Some Empirical Aspects of Entrepreneurship," American Economic Review, American Economic Association, vol. 79(3), pages 519-535, June.
    28. Erik Hurst & Benjamin Wild Pugsley, 2011. "What Do Small Businesses Do?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(2 (Fall)), pages 73-142.
    29. Steven N. Kaplan & Joshua Rauh, 2013. "It's the Market: The Broad-Based Rise in the Return to Top Talent," Journal of Economic Perspectives, American Economic Association, vol. 27(3), pages 35-56, Summer.
    30. Kevin J. Murphy & Ján Zábojník, 2004. "CEO Pay and Appointments: A Market-Based Explanation for Recent Trends," American Economic Review, American Economic Association, vol. 94(2), pages 192-196, May.
    31. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2008. "Trends in U.S. Wage Inequality: Revising the Revisionists," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 300-323, May.
    32. Robert Summers & Alan Heston, 1991. "The Penn World Table (Mark 5): An Expanded Set of International Comparisons, 1950–1988," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 327-368.
    33. Thomas Piketty & Emmanuel Saez, 2006. "The Evolution of Top Incomes: A Historical and International Perspective," American Economic Review, American Economic Association, vol. 96(2), pages 200-205, May.
    34. Jason G. Cummins & Giovanni L. Violante, 2002. "Investment-Specific Technical Change in the US (1947-2000): Measurement and Macroeconomic Consequences," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(2), pages 243-284, April.
    35. Gene M. Grossman & Elhanan Helpman & Philipp Kircher, 2013. "Matching and Sorting in a Global Economy," NBER Working Papers 19513, National Bureau of Economic Research, Inc.
    36. Nugent, Jeffrey B & Yhee, Seung-Jae, 2002. "Small and Medium Enterprises in Korea: Achievements, Constraints and Policy Issues," Small Business Economics, Springer, vol. 18(1-3), pages 85-119, Feb.- May.
    37. Michael Elsby & Bart Hobijn & Ayseful Sahin, 2013. "The Decline of the U.S. Labor Share," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 44(2 (Fall)), pages 1-63.
    38. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1403-1448.
    39. Urata, Shujiro & Kawai, Hiroki, 2002. "Technological Progress by Small and Medium Enterprises in Japan," Small Business Economics, Springer, vol. 18(1-3), pages 53-67, Feb.- May.
    40. Boyan Jovanovic & Peter L. Rousseau, 2008. "Specific Capital and Technological Variety," Journal of Human Capital, University of Chicago Press, vol. 2(2), pages 129-152.
    41. Antunes, António & Cavalcanti, Tiago & Villamil, Anne, 2008. "The effect of financial repression and enforcement on entrepreneurship and economic development," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 278-297, March.
    42. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-1150, September.
    43. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-298, April.
    44. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-362, June.
    45. Marko Tervio, 2008. "The Difference That CEOs Make: An Assignment Model Approach," American Economic Review, American Economic Association, vol. 98(3), pages 642-668, June.
    46. James, John A. & Skinner, Jonathan S., 1985. "The Resolution of the Labor-Scarcity Paradox," The Journal of Economic History, Cambridge University Press, vol. 45(03), pages 513-540, September.
    47. Jones, Charles I, 1995. "R&D-Based Models of Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 759-784, August.
    48. Manuel García-Santana & Roberto Ramos, 2015. "Distortions and the size distribution of plants: evidence from cross-country data," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 6(3), pages 279-312, August.
    49. Teulings, Coen N, 1995. "The Wage Distribution in a Model of the Assignment of Skills to Jobs," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 280-315, April.
    50. Matthias Kehrig, 2011. "The Cyclicality of Productivity Dispersion," 2011 Meeting Papers 484, Society for Economic Dynamics.
    51. Galina Vereshchagina & Hugo A. Hopenhayn, 2009. "Risk Taking by Entrepreneurs," American Economic Review, American Economic Association, vol. 99(5), pages 1808-1830, December.
    52. Luis Garicano, 2000. "Hierarchies and the Organization of Knowledge in Production," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 874-904, October.
    53. Ahmet Akyol & Kartik Athreya, 2009. "Self-employment rates and business size: the roles of occupational choice and credit market frictions," Annals of Finance, Springer, vol. 5(3), pages 495-519, June.
    54. Huw Lloyd-Ellis, 1999. "Endogenous Technological Change and Wage Inequality," American Economic Review, American Economic Association, vol. 89(1), pages 47-77, March.
    55. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
    56. Samaniego, Roberto M., 2006. "Industrial subsidies and technology adoption in general equilibrium," Journal of Economic Dynamics and Control, Elsevier, vol. 30(9-10), pages 1589-1614.
    57. Klapper, Leora & Laeven, Luc & Rajan, Raghuram, 2006. "Entry regulation as a barrier to entrepreneurship," Journal of Financial Economics, Elsevier, vol. 82(3), pages 591-629, December.
    58. Rauch, James E., 1991. "Modelling the informal sector formally," Journal of Development Economics, Elsevier, vol. 35(1), pages 33-47, January.
    59. Sherwin Rosen, 1982. "Authority, Control, and the Distribution of Earnings," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 311-323, Autumn.
    60. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
    61. Ananth Seshadri & Nicolas Roys, 2012. "Economic Development and the Organization of Production," 2012 Meeting Papers 456, Society for Economic Dynamics.
    62. Romer, Paul M, 1987. "Growth Based on Increasing Returns Due to Specialization," American Economic Review, American Economic Association, vol. 77(2), pages 56-62, May.
    63. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 604-631, June.
    64. Cain, Louis P. & Paterson, Donald G., 1986. "Biased Technical Change, Scale, and Factor Substitution in American Industry, 1850–1919," The Journal of Economic History, Cambridge University Press, vol. 46(01), pages 153-164, March.
    65. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-748, August.
    66. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pedro Bento & Diego Restuccia, 2017. "Misallocation, Establishment Size, and Productivity," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(3), pages 267-303, July.
    2. Ana I. Moreno-Monroy & Shu Yu & Victoria Euse, 2016. "Urban Employment in Small Businesses and the Level of Economic Development: Evidence from Chinese Cities," Growth and Change, Wiley Blackwell, vol. 47(1), pages 53-71, March.
    3. Alessandra Bonfiglioli & Rosario Crinò & Gino Gancia, 2018. "Betting on Exports: Trade and Endogenous Heterogeneity," Economic Journal, Royal Economic Society, vol. 128(609), pages 612-651, March.
    4. Poschke, Markus, 2013. "Who becomes an entrepreneur? Labor market prospects and occupational choice," Journal of Economic Dynamics and Control, Elsevier, vol. 37(3), pages 693-710.
    5. Pedro Gomes & Zoe Kuehn, 2017. "Human capital and the size distribution of firms," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 164-179, October.
    6. Alain Gabler & Markus Poschke, 2013. "Experimentation by Firms, Distortions, and Aggregate Productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 26-38, January.
    7. Felbermayr, Gabriel & Jung, Benjamin & Larch, Mario, 2013. "Optimal tariffs, retaliation, and the welfare loss from tariff wars in the Melitz model," Journal of International Economics, Elsevier, vol. 89(1), pages 13-25.
    8. repec:eee:deveco:v:127:y:2017:i:c:p:25-41 is not listed on IDEAS
    9. Pavel Sevcik, 2015. "Financial Frictions, Internal Capital Markets, and the Organization of Production," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(3), pages 505-522, July.
    10. Grjebine, Thomas & Szczerbowicz, Urszula & Tripier, Fabien, 2018. "Corporate debt structure and economic recoveries," European Economic Review, Elsevier, vol. 101(C), pages 77-100.
    11. Prettner, Klaus & Strulik, Holger, 2018. "Trade and productivity: The family connection redux," Journal of Macroeconomics, Elsevier, vol. 56(C), pages 276-291.
    12. Manuel García-Santana & Roberto Ramos, 2015. "Distortions and the size distribution of plants: evidence from cross-country data," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 6(3), pages 279-312, August.
    13. López-Martín Bernabé, 2016. "Informal Sector Misallocation," Working Papers 2016-09, Banco de México.
    14. Vicente Salas-Fumás & J. Sanchez-Asin & David Storey, 2014. "Occupational choice, number of entrepreneurs and output: theory and empirical evidence with Spanish data," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 5(1), pages 1-24, March.
    15. Pavel Sevcik, 2015. "Financial Frictions, Internal Capital Markets, and the Organization of Production," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(3), pages 505-522, July.
    16. Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Emmanuel Saez, 2016. "Why Can Modern Governments Tax So Much? An Agency Model of Firms as Fiscal Intermediaries," Economica, London School of Economics and Political Science, vol. 83(330), pages 219-246, April.
    17. Pedro Gomes & Zoe Kuehn, 2017. "Human capital and the size distribution of firms," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 164-179, October.
    18. Mario Larch & Pehr-Johan Norbäck & Steffen Sirries & Dieter M. Urban, 2016. "Heterogeneous Firms, Globalisation and the Distance Puzzle," The World Economy, Wiley Blackwell, vol. 39(9), pages 1307-1338, September.
    19. Poschke, Markus, 2013. "The Decision to Become an Entrepreneur and the Firm Size Distribution: A Unifying Framework for Policy Analysis," IZA Discussion Papers 7757, Institute for the Study of Labor (IZA).
    20. Nadine Riedel & Martin Simmler, 2018. "Large and Influential: Firm Size and Governments' Corporate Tax Rate Choice," CESifo Working Paper Series 6904, CESifo Group Munich.
    21. Fix, Blair, 2016. "Energy and Institution Size," Working Papers on Capital as Power 2016/04, Capital As Power - Toward a New Cosmology of Capitalism.
    22. Epstein, Brendan & Finkelstein Shapiro, Alan, 2017. "Employment and firm heterogeneity, capital allocation, and countercyclical labor market policies," Journal of Development Economics, Elsevier, vol. 127(C), pages 25-41.

    More about this item

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

    Lists

    This item is featured on the following reading lists or Wikipedia pages:
    1. The Firm Size Distribution across Countries and Skill-Biased Change in Entrepreneurial Technology (AEJ:MA 2018) in ReplicationWiki

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aejmac:v:10:y:2018:i:3:p:1-41. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael P. Albert). General contact details of provider: http://edirc.repec.org/data/aeaaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.