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Industry Dynamics and the Distribution of Firm Sizes: A Nonparametric Approach

Author

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  • Francesca Lotti

    () (Research Department, Bank of Italy)

  • Enrico Santarelli

    () (Department of Economics, University of Bologna)

Abstract

The aim of this paper is to analyze the evolution of the size distribution of young firms within some selected industries, using as a background three theories of the distribution of firm sizes that identify a process of passive learning (Jovanovic 1982), one of active learning (Ericson and Pakes 1995), and an evolutionary one (Audretsch 1995) in the postentry dynamics of business firms. We use a nonparametric technique, the kernel density estimator, applied to a data set from the Italian National Institute for Social Security (INPS), consisting of 12 cohorts of new manufacturing firms that were followed on a quarterly base for six years. We find that firm size distribution is in general skewed to the right, although different industries display different paths and speeds of convergence toward the limit distribution. This finding is fairly consistent with theories allowing for industry heterogeneity in terms of structural and technological features, which, in turn, result in industry-specific evolution of the size distribution of new entrants.

Suggested Citation

  • Francesca Lotti & Enrico Santarelli, 2004. "Industry Dynamics and the Distribution of Firm Sizes: A Nonparametric Approach," Southern Economic Journal, Southern Economic Association, vol. 70(3), pages 443-466, January.
  • Handle: RePEc:sej:ancoec:v:70:3:y:2004:p:443-466
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    References listed on IDEAS

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    1. Pagan,Adrian & Ullah,Aman, 1999. "Nonparametric Econometrics," Cambridge Books, Cambridge University Press, number 9780521355643, April.
    2. Francesca Lotti & Enrico Santarelli & Marco Vivarelli, 2001. "Is It Really Wise to Design Policies in Support of New Firm Formation?," Rivista di Politica Economica, SIPI Spa, vol. 91(4), pages 151-170, April-May.
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