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The complex behavior of firms' size dynamics

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  • Gallegati, M.
  • Palestrini, A.

Abstract

This paper's aim is to shed some light to the complex dynamics of firms' size distribution (FSD). In particular we give an alternative explanation to the Cabral and Mata (2003) finding. In that paper they show that the distribution of surviving firms tends to the log-normal distribution. As an explanation they consider the "small-firms selection" argument and introduce the "financial constraint" model. We give an alternative explanation based on a "sample selection bias" argumentation. In other terms, a cohort of surviving firms may have a positive average rate of growth. This simple fact breaks the assumptions needed in order to have an asymptotic Pareto FSD. Furthermore, we show how a simple modification of a well-known multiplicative process of firms' growth, taking into account common and idiosyncratic elements, may reconcile an old aggregate-sector puzzle (Quandt, 1966) on firms' size distribution reported in the literature. The paper shows the possibility to have aggregate Pareto distributed FSD and non-Pareto distributed sectors.

Suggested Citation

  • Gallegati, M. & Palestrini, A., 2010. "The complex behavior of firms' size dynamics," Journal of Economic Behavior & Organization, Elsevier, vol. 75(1), pages 69-76, July.
  • Handle: RePEc:eee:jeborg:v:75:y:2010:i:1:p:69-76
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    References listed on IDEAS

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    2. 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.
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    8. Gaffeo, Edoardo & Gallegati, Mauro & Palestrini, Antonio, 2003. "On the size distribution of firms: additional evidence from the G7 countries," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 117-123.
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    Citations

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    Cited by:

    1. Chiarella, Carl & Di Guilmi, Corrado, 2011. "The financial instability hypothesis: A stochastic microfoundation framework," Journal of Economic Dynamics and Control, Elsevier, vol. 35(8), pages 1151-1171, August.
    2. Antonio Palestrini, 2015. "Firm Size Distribution and the Survival Bias," Economics Bulletin, AccessEcon, vol. 35(3), pages 1630-1637.
    3. Soriano-Hernández, P. & del Castillo-Mussot, M. & Campirán-Chávez, I. & Montemayor-Aldrete, J.A., 2017. "Wealth of the world’s richest publicly traded companies per industry and per employee: Gamma, Log-normal and Pareto power-law as universal distributions?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 471(C), pages 733-749.
    4. Segarra, Agustí & Teruel, Mercedes, 2012. "An appraisal of firm size distribution: Does sample size matter?," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 314-328.
    5. Gao, Baojun & Chan, Wai Kin (Victor) & Li, Hongyi, 2015. "On the increasing inequality in size distribution of China's listed companies," China Economic Review, Elsevier, vol. 36(C), pages 25-41.
    6. Pedro Mazeda Gil & Fernanda Figueiredo, 2011. "Firm Size Distribution under Horizontal and Vertical Innovation," DEGIT Conference Papers c016_065, DEGIT, Dynamics, Economic Growth, and International Trade.
    7. Guo, Jinzhong & Xu, Qi & Chen, Qinghua & Wang, Yougui, 2013. "Firm size distribution and mobility of the top 500 firms in China, the United States and the world," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(13), pages 2903-2914.

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