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A Generalized Preferential Attachment Model for Business Firms Growth Rates: I. Empirical Evidence

Author

Listed:
  • Pammolli, Fabio
  • Fu, Dongfeng
  • Buldyrev, Sergey V.
  • Riccaboni, Massimo
  • Matia, Kaushik
  • Yamasaki, Kazuko
  • Stanley, H. Eugene

Abstract

We introduce a model of proportional growth to explain the distribution P(g) of business firm growth rates. The model predicts that P(g) is Laplace in the central part and depicts an asymptotic power-law behavior in the tails with an exponent ζ = 3. Because of data limitations, previous studies in this field have been focusing exclusively on the Laplace shape of the body of the distribution. We test the model at different levels of aggregation in the economy, from products, to firms, to countries, and we find that the its predictions are in good agreement with empirical evidence on both growth distributions and size-variance relationships.

Suggested Citation

  • Pammolli, Fabio & Fu, Dongfeng & Buldyrev, Sergey V. & Riccaboni, Massimo & Matia, Kaushik & Yamasaki, Kazuko & Stanley, H. Eugene, 2006. "A Generalized Preferential Attachment Model for Business Firms Growth Rates: I. Empirical Evidence," MPRA Paper 15983, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:15983
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    References listed on IDEAS

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    1. De Fabritiis, G. & Pammolli, F. & Riccaboni, M., 2003. "On size and growth of business firms," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 38-44.
    2. Bottazzi, Giulio & Dosi, Giovanni & Lippi, Marco & Pammolli, Fabio & Riccaboni, Massimo, 2001. "Innovation and corporate growth in the evolution of the drug industry," International Journal of Industrial Organization, Elsevier, vol. 19(7), pages 1161-1187, July.
    3. Xavier Gabaix, 1999. "Zipf's Law for Cities: An Explanation," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 739-767.
    4. Youngki Lee & Luis A. N. Amaral & David Canning & Martin Meyer & H. Eugene Stanley, 1998. "Universal features in the growth dynamics of complex organizations," Papers cond-mat/9804100, arXiv.org.
    5. L. A. N. Amaral & S. V. Buldyrev & S. Havlin & H. Leschhorn & P. Maass & M. A. Salinger & H. E. Stanley & M. H. R. Stanley, 1997. "Scaling behavior in economics: I. Empirical results for company growth," Papers cond-mat/9702082, arXiv.org.
    6. Kaushik Matia & Dongfeng Fu & Sergey V. Buldyrev & Fabio Pammolli & Massimo Riccaboni & H. Eugene Stanley, 2005. "Statistical Properties of Business Firms Structure and Growth," Papers physics/0502081, arXiv.org.
    7. Canning, D. & Amaral, L. A. N. & Lee, Y. & Meyer, M. & Stanley, H. E., 1998. "Scaling the volatility of GDP growth rates," Economics Letters, Elsevier, vol. 60(3), pages 335-341, September.
    8. S. V. Buldyrev & L. A. N. Amaral & S. Havlin & H. Leschhorn & P. Maass & M. A. Salinger & H. E. Stanley & M. H. R. Stanley, 1997. "Scaling behavior in economics: II. Modeling of company growth," Papers cond-mat/9702085, arXiv.org.
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    Citations

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    Cited by:

    1. Yuichi Ikeda & Hideaki Aoyama & Hiroshi Iyetomi & Yoshi Fujiwara & Wataru Souma, 2008. "Correlated performance of firms in a transaction network," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 3(1), pages 73-80, June.
    2. Kaldasch, Joachim, 2012. "Evolutionary model of the personal income distribution," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(22), pages 5628-5642.

    More about this item

    Keywords

    Gibrat Law; Firm Growth; Size Distribution;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • 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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