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Firm Size Distribution under Horizontal and Vertical Innovation

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  • Pedro Mazeda Gil
  • Fernanda Figueiredo

Abstract

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 of firms 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 falling variance over a long time span, the model is able to address complementary empirical evidence that points to a total distribution subtly evolving over time.

Suggested Citation

  • Pedro Mazeda Gil & Fernanda Figueiredo, 2011. "Firm Size Distribution under Horizontal and Vertical Innovation," DEGIT Conference Papers c016_065, DEGIT, Dynamics, Economic Growth, and International Trade.
  • Handle: RePEc:deg:conpap:c016_065
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Pedro Mazeda Gil & Gustavo Iglésias,, 2018. "Endogenous Growth and Real Effects of Monetary Policy: R&D and Physical Capital Complementarities in a Cash-in-Advance Economy," CEF.UP Working Papers 1802, Universidade do Porto, Faculdade de Economia do Porto.
    2. Świadek Arkadiusz & Szopik-Depczyńska Katarzyna, 2014. "Changes In Innovation Activity In Regional Industrial System In The Context Of Size Of Enterprises In West Pomeranian Province," Folia Oeconomica Stetinensia, Sciendo, vol. 14(2), pages 225-238, December.
    3. Zakaria Babutsidze, 2016. "Innovation, competition and firm size distribution on fragmented markets," Journal of Evolutionary Economics, Springer, vol. 26(1), pages 143-169, March.
    4. Arkadiusz Świadek, 2014. "Wpływ wielkości przedsiębiorstw na innowacyjność systemu przemysłowego w Polsce," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 1, pages 121-139.
    5. Zakaria Babutsidze, 2016. "Innovation, competition and firm size distribution on fragmented markets," Journal of Evolutionary Economics, Springer, vol. 26(1), pages 143-169, March.
    6. Jakub Growiec & Fabio Pammolli & Massimo Riccaboni, 2020. "Innovation and Corporate Dynamics: A Theoretical Framework," Central European Journal of Economic Modelling and Econometrics, CEJEME, vol. 12(1), pages 1-45, March.
    7. Pedro Mazeda Gil & Gustavo Iglésias, 2020. "Endogenous Growth and Real Effects of Monetary Policy: R&D and Physical Capital Complementarities," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(5), pages 1147-1197, August.
    8. Christian Cordes & Tong-Yaa Su & Pontus Strimling, 2019. "A critical human group size and firm size distributions in industries," Journal of Bioeconomics, Springer, vol. 21(2), pages 123-144, July.

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    More about this item

    Keywords

    Firm size distribution; Skewness; Heavy tails; Endogenous growth; Horizontal and vertical R&D;
    All these keywords.

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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