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The Growth of Business Firms: Theoretical Framework and Empirical Evidence

Author

Listed:
  • Dongfeng Fu

    (Boston USA)

  • Fabio Pammolli

    (Boston USA
    Milan Italy
    Lucca Italy)

  • S. V. Buldyrev

    (New York NY)

  • Massimo Riccaboni

    (Milan Italy
    Lucca Italy)

  • Kaushik Matia

    (Boston USA)

  • Kazuko Yamasaki

    (Chiba City, Japan)

  • H. E. Stanley

    (Boston USA)

Abstract

We introduce a model of proportional growth to explain the distribution of business firm growth rates. The model predicts that the distribution is exponential in the central part and depicts an asymptotic power-law behavior in the tails with an exponent 3. Because of data limitations, previous studies in this field have been focusing exclusively on the Laplace shape of the body of the distribution. In this article, we test the model at different levels of aggregation in the economy, from products to firms to countries, and we find that the model's predictions agree with empirical growth distributions and size-variance relationships.

Suggested Citation

  • Dongfeng Fu & Fabio Pammolli & S. V. Buldyrev & Massimo Riccaboni & Kaushik Matia & Kazuko Yamasaki & H. E. Stanley, 2005. "The Growth of Business Firms: Theoretical Framework and Empirical Evidence," Papers physics/0512005, arXiv.org.
    • Handle: RePEc:arx:papers:physics/0512005
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    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • D39 - Microeconomics - - Distribution - - - Other
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • L00 - Industrial Organization - - General - - - General
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications

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