Firm size distribution under horizontal and vertical innovation
This paper studies the firm size distribution arising from an endogenous growth model of quality ladders with expanding variety. The probability distribution function of a given cohort is a Poisson distribution that converges asymptotically to a normal of log size. However, due to firm entry propelled by horizontal R&D, the total distribution—i.e., when the entire population of firms is considered—is a mixture of overlapping Poisson distributions which is systematically right skewed and exhibits a fatter upper tail than the normal distribution of log size. Our theoretical results qualitatively match the empirical evidence found both for the cohort and the total distribution, and which has been presented as a challenge for theory to explain. Moreover, by obtaining a total distribution with a gradually increasing average over a long time span, the model is able to address complementary empirical evidence that points to a total distribution subtly evolving over time. Copyright Springer-Verlag 2013
Volume (Year): 23 (2013)
Issue (Month): 1 (January)
|Contact details of provider:|| Web page: http://link.springer.de/link/service/journals/00191/index.htm|
|Order Information:||Web: http://link.springer.de/orders.htm|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Reed, William J., 2003. "The Pareto law of incomes—an explanation and an extension," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 319(C), pages 469-486.
- Christopher Laincz, 2009. "R&D subsidies in a model of growth with dynamic market structure," Journal of Evolutionary Economics, Springer, vol. 19(5), pages 643-673, October.
- Alain Gabler & Omar Licandro, 2007. "Endogenous Growth through Selection and Imitation," Economics Working Papers ECO2007/26, European University Institute.
- Poschke, Markus, 2007.
"Employment Protection, Firm Selection, and Growth,"
IZA Discussion Papers
3164, Institute for the Study of Labor (IZA).
- Peretto, Pietro F, 1998.
" Technological Change and Population Growth,"
Journal of Economic Growth,
Springer, vol. 3(4), pages 283-311, December.
- Patrizio Pagano & Fabiano Schivardi, 2001.
"Firm Size Distribution and Growth,"
Temi di discussione (Economic working papers)
394, Bank of Italy, Economic Research and International Relations Area.
- Steven Klepper & Peter Thompson, 2006. "Submarkets and the evolution of market structure," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 861-886, December.
- Tor Jakob Klette & Samuel Kortum, 2002.
"Innovating Firms and Aggregate Innovation,"
NBER Working Papers
8819, National Bureau of Economic Research, Inc.
- Klette, Tor Jakob & Kortum, Samuel S, 2002. "Innovating Firms and Aggregate Innovation," CEPR Discussion Papers 3248, C.E.P.R. Discussion Papers.
- Jakob Klette & Samuel Kortum, 2002. "Innovating firms and aggregate innovation," Staff Report 300, Federal Reserve Bank of Minneapolis.
- Klette, Tor Jakob & Kortum, Samuel, 2002. "Innovating Firms and Aggregate Innovation," Memorandum 02/2002, Oslo University, Department of Economics.
- Paul S. Segerstrom, 2007.
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(1), pages 247-280, 02.
- Growiec, Jakub & Pammolli, Fabio & Riccaboni, Massimo & Stanley, H. Eugene, 2008. "On the size distribution of business firms," Economics Letters, Elsevier, vol. 98(2), pages 207-212, February.
- Esteban Rossi-Hansberg & Mark L. J. Wright, 2007.
"Establishment Size Dynamics in the Aggregate Economy,"
American Economic Review,
American Economic Association, vol. 97(5), pages 1639-1666, December.
- Esteban Rossi-Hansberg & Mark L. J. Wright, 2006. "Establishment size dynamics in the aggregate economy," Staff Report 382, Federal Reserve Bank of Minneapolis.
- Luis A. Rivera-Batiz & Paul M. Romer, 1990.
"Economic Integration and Endogenous Growth,"
NBER Working Papers
3528, National Bureau of Economic Research, Inc.
- Aghion, Philippe, et al, 2001. "Competition, Imitation and Growth with Step-by-Step Innovation," Review of Economic Studies, Wiley Blackwell, vol. 68(3), pages 467-92, July.
- Gerrit de Wit, 2004.
"Firm Size Distributions : An overview of steady-state distributions resulting from firm dynamics models,"
Scales Research Reports
N200418, EIM Business and Policy Research.
- de Wit, Gerrit, 2005. "Firm size distributions: An overview of steady-state distributions resulting from firm dynamics models," International Journal of Industrial Organization, Elsevier, vol. 23(5-6), pages 423-450, June.
- Holger Strulik, 2007.
"Too Much of a Good Thing? The Quantitative Economics of R&D-driven Growth Revisited,"
Scandinavian Journal of Economics,
Wiley Blackwell, vol. 109(2), pages 369-386, 06.
- Holger Strulik, 2005. "Too Much of a Good Thing? The Quantitative Economics of R&D–driven Growth Revisited," Discussion Papers 05-26, University of Copenhagen. Department of Economics.
- John Sutton, 1997. "Gibrat's Legacy," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 40-59, March.
- 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.
- Lu�s M B Cabral & Jos� 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.
- Etro, Federico, 2008. "Growth leaders," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1148-1172, September.
- McCloughan, Patrick, 1995. "Simulation of Concentration Development from Modified Gibrat Growth-Entry-Exit Processes," Journal of Industrial Economics, Wiley Blackwell, vol. 43(4), pages 405-33, December.
- Luís Cabral, 2007. "Small firms in Portugal: a selective survey of stylized facts, economic analysis, and policy implications," Portuguese Economic Journal, Springer, vol. 6(1), pages 65-88, April.
- Harris, Christopher & Howitt, Peter & Vickers, John & Aghion, Philippe, 2001. "Competition, Imitation and Growth with Step-by-Step Innovation," Scholarly Articles 12375013, Harvard University Department of Economics.
- William J. Reed, 2002. "On the Rank-Size Distribution for Human Settlements," Journal of Regional Science, Wiley Blackwell, vol. 42(1), pages 1-17.
- David B. Audretsch, 1995. "Innovation and Industry Evolution," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011468, June.
- Kim P. Huynh & David T. Jacho‐Chávez, 2010. "Firm size distributions through the lens of functional principal components analysis," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(7), pages 1211-1214, November/.
- Jovanovic, B., 1993. "The Diversification of Production," Working Papers 93-11, C.V. Starr Center for Applied Economics, New York University.
- Klepper, Steven, 1996. "Entry, Exit, Growth, and Innovation over the Product Life Cycle," American Economic Review, American Economic Association, vol. 86(3), pages 562-83, June.
- Geroski, P. A., 1995. "What do we know about entry?," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 421-440, December.
- Chris Freeman & Luc Soete, 1997. "The Economics of Industrial Innovation, 3rd Edition," MIT Press Books, The MIT Press, edition 3, volume 1, number 0262061953, June.
- Gil, Pedro Mazeda & Brito, Paulo & Afonso, Oscar, 2013.
"Growth And Firm Dynamics With Horizontal And Vertical R&D,"
Cambridge University Press, vol. 17(07), pages 1438-1466, October.
- Pedro Rui Mazeda Gil & Paulo Brito & Óscar Afonso, 2010. "Growth and Firm Dynamics with Horizontal and Vertical R&D," FEP Working Papers 356, Universidade do Porto, Faculdade de Economia do Porto.
- Peter Howitt, 1999. "Steady Endogenous Growth with Population and R & D Inputs Growing," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 715-730, August.
- repec:rje:randje:v:37:y:2006:i:4:p:861-886 is not listed on IDEAS
- Erzo G. J. Luttmer, 2007. "Selection, Growth, and the Size Distribution of Firms," The Quarterly Journal of Economics, MIT Press, vol. 122(3), pages 1103-1144, 08.
When requesting a correction, please mention this item's handle: RePEc:spr:joevec:v:23:y:2013:i:1:p:129-161. 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: (Guenther Eichhorn)or (Christopher F Baum)
If references are entirely missing, you can add them using this form.