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Firm Size Distribution and Growth

  • Patrizio Pagano
  • Fabiano Schivardi

Empirical documentation of the sectoral distribution of firm size for a set of European countries reveals substantial differences. We study the relationship between productivity growth at the industry level and size structure. A positive and robust relation is found between average firm size and growth. We ask why size should matter for growth by considering the role of innovation to construct a test based on the differential effect of size on growth according to various indicators of R&D intensity. Our results indicate that larger size fosters productivity growth because it allows firms to take advantage of all the increasing returns associated with R&D. We argue that our test can be interpreted as a test of reverse causality, which lends support to the view that firm size has a causal impact on growth. Copyright The editors of the "Scandinavian Journal of Economics", 2003 .

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Article provided by Wiley Blackwell in its journal The Scandinavian Journal of Economics.

Volume (Year): 105 (2003)
Issue (Month): 2 (06)
Pages: 255-274

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Handle: RePEc:bla:scandj:v:105:y:2003:i:2:p:255-274
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