Does Gibrat’s law hold amongst dairy farmers in Northern Ireland?
This paper tests whether the Law of Proportionate Effects (Gibrat, 1931), which states that farms grow at a rate that is independent of their size, holds for the dairy farms in Northern Ireland. Previous studies have tended to concentrate on testing whether the law holds for all farms. The methodology used in this study permits investigation of whether the law holds for some farms or all farms according to their size. The approach used avoids the subjective splitting of samples, which tends to bias results. Additionally we control for the possible sample selection bias. The findings show that the Gibrat law does hold except in the case of small farms. This is in accordance with previous findings that Gibrat’s law tends to hold when only larger farms are considered, but tends to fail when smaller farms are included in the analysis. Implications and further extensions, as well as some alternatives to the proposed methodology are discussed.
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