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The Firm Size Distribution and Inter-Industry Diversification

  • John Hutchinson


  • Jozef Konings


  • Patrick Walsh


We show that the stylized facts of the Firm Size Distribution (FSD) by age cohorts, as shown in Cabral and Mata (2003), bind within 4-digit manufacturing industries in the UK and Belgium. As in Klepper and Thompson (2006) and Sutton (1998), we explore whether time to build a portfolio of products is a mechanism that relates age to firm size. While inter industry diversification, to some extent, accounts for the role of age, we find that the presence of economies of scope has a separate impact on firm size when controlling for age, amongst other factors. Using the techniques in Cabral and Mata's we show that the FSD by degrees of product diversification shifts to the right, but more so in older age groups. This shows a role for inter-industry diversification over and above an age effect.

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Article provided by Springer in its journal Review of Industrial Organization.

Volume (Year): 37 (2010)
Issue (Month): 2 (September)
Pages: 65-82

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Handle: RePEc:kap:revind:v:37:y:2010:i:2:p:65-82
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  1. Stephen J Redding & Peter K Schott & Andrew B Bernard, 2007. "Multi-product Firms and Trade Liberalization," 2007 Meeting Papers 44, Society for Economic Dynamics.
  2. Paolo Angelini & Andrea Generale, 2008. "On the Evolution of Firm Size Distributions," American Economic Review, American Economic Association, vol. 98(1), pages 426-38, March.
  3. Franco Mariuzzo & Patrick Paul Walsh & Ciara Whelan, 2003. "Firm Size and Market Power in Carbonated Soft Drinks," Review of Industrial Organization, Springer, vol. 23(3_4), pages 283-299, December.
  4. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
  5. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  6. Cabral, Luís M B & Mata, José, 2001. "On the Evolution of the Firm Size Distribution: Facts and Theory," CEPR Discussion Papers 3045, C.E.P.R. Discussion Papers.
  7. Andrew B. Bernard & Stephen Redding & Peter K. Schott, 2010. "Multiple-product firms and product switching," LSE Research Online Documents on Economics 27861, London School of Economics and Political Science, LSE Library.
  8. Buzzacchi, Luigi & Valletti, Tommaso, 2002. "Firm Size Distribution: Testing the 'Independent Submarkets Model' in the Italian Motor Insurance Industry," CEPR Discussion Papers 3444, C.E.P.R. Discussion Papers.
  9. Schmalensee, Richard., 1987. "Inter-industry studies of structure and performance," Working papers 1874-87., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  10. Nocke, Volker & Yeaple, Stephen R, 2008. "Globalization and the Size Distribution of Multiproduct Firms," CEPR Discussion Papers 6948, C.E.P.R. Discussion Papers.
  11. Ciara Whelan & Patrick P. Walsh, 2002. "Portfolio effects and firm size distribution : carbonated soft drinks," Open Access publications 10197/130, School of Economics, University College Dublin.
  12. Timothy Dunne & Mark J. Roberts & Larry Samuelson, 1989. "The Growth and Failure of U. S. Manufacturing Plants," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 671-698.
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