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Economic Growth and the Rise of Large Firms

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  • Zhang Chen

Abstract

I document that the right tail of the firm size distribution systematically thickens with economic development. To rationalize this fact, I develop a parsimonious idea search model in which both aggregate growth and the firm size distribution are endogenously determined. The model features an asymptotic balanced growth path along which Gibrat's law holds at each date, and the right tail of the firm size distribution thickens monotonically toward Zipf's law. The model also implies that policies favoring large firms can improve welfare by better utilizing the diffusion externalities arising from idea search.

Suggested Citation

  • Zhang Chen, 2026. "Economic Growth and the Rise of Large Firms," Econometrica, Econometric Society, vol. 94(4), pages 1375-1408, July.
    • Handle: RePEc:wly:emetrp:v:94:y:2026:i:4:p:1375-1408
    DOI: 10.3982/ECTA22110
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