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Firm Size Dynamics in the Aggregate Economy

  • Mark L.J. Wright
  • Esteban Rossi-Hansberg

Why do firm growth and exit rates decline with size? What determines the size distribution of firms and plants? This paper addresses these questions in a dynamic model of firm size with entry and exit that emphasizes the accumulation of specific factors in response to industry specific productivity shocks. The emphasis on the accumulation and allocation of specific factors leads to new implications for the relationship between capital intensity, firm size, and firm dynamics. We show that these implications are consistent with US data.

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Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 878.

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Date of creation: 2004
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Handle: RePEc:red:sed004:878
Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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  1. Bronwyn H. Hall, 1986. "The Relationship Between Firm Size and Firm Growth in the U.S. Manufacturing Sector," NBER Working Papers 1965, National Bureau of Economic Research, Inc.
  2. Esteban Rossi-Hansberg & Mark L. J. Wright, 2006. "Urban structure and growth," Staff Report 381, Federal Reserve Bank of Minneapolis.
  3. Gian Luca Clementi & Hugo Hopenhayn, 2002. "A Theory of Financing Constraints and Firm Dynamics," RCER Working Papers 492, University of Rochester - Center for Economic Research (RCER).
  4. Gorecki, Paul K, 1976. "The Determinants of Entry by Domestic and Foreign Enterprises in Canadian Manufacturing Industries: Some Comments and Empirical Results," The Review of Economics and Statistics, MIT Press, vol. 58(4), pages 485-88, November.
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  7. Orr, Dale, 1974. "The Determinants of Entry: A Sudy of the Canadian Manufacturing Industries," The Review of Economics and Statistics, MIT Press, vol. 56(1), pages 58-66, February.
  8. D.B. Audretsch & L. Klomp & E. Santarelli & A.R. Thurik, 2004. "Gibrat's Law: Are the Services Different?," Review of Industrial Organization, Springer, vol. 24(3), pages 301-324, 05.
  9. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  10. Rui Albuquerque & Hugo A. Hopenhayn, 2004. "Optimal Lending Contracts and Firm Dynamics," Review of Economic Studies, Wiley Blackwell, vol. 71(2), pages 285-315, 04.
  11. Dunne, Timothy & Roberts, Mark J & Samuelson, Larry, 1989. "The Growth and Failure of U.S. Manufacturing Plants," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 671-98, November.
  12. Diego Restuccia & Richard Rogerson, 2007. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," Working Papers tecipa-283, University of Toronto, Department of Economics.
  13. Dunne, Timothy & Roberts, Mark J & Samuelson, Larry, 1989. "Plant Turnover and Gross Employment Flows in the U.S. Manufacturing Sector," Journal of Labor Economics, University of Chicago Press, vol. 7(1), pages 48-71, January.
  14. Geroski, P. A., 1995. "What do we know about entry?," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 421-440, December.
  15. Monika Piazzesi & Eric Swanson, 2004. "Future prices as risk-adjusted forecasts of monetary policy," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  16. Schmalensee, Richard., 1987. "Inter-industry studies of structure and performance," Working papers 1874-87., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  17. Gueorgui Kambourov & Iourii Manovskii, 2009. "Occupational Specificity Of Human Capital," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(1), pages 63-115, 02.
  18. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September.
  19. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 53-82, January.
  20. Evans, David S, 1987. "The Relationship between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 567-81, June.
  21. Charles I. Jones, 2004. "The Shape of Production Function and the Direction of Technical Change," NBER Working Papers 10457, National Bureau of Economic Research, Inc.
  22. Bee Yan Aw & Sukkyun Chung & Mark J. Roberts, 2002. "Productivity, Output, and Failure: A Comparison of Taiwanese and Korean Manufacturers," NBER Working Papers 8766, National Bureau of Economic Research, Inc.
  23. Hause, John C & Du Rietz, Gunnar, 1984. "Entry, Industry Growth, and the Microdynamics of Industry Supply," Journal of Political Economy, University of Chicago Press, vol. 92(4), pages 733-57, August.
  24. Thomas F. Cooley & Vincenzo Quadrini, 1999. "Financial Markets and Firm Dynamics," Working Papers 99-14, New York University, Leonard N. Stern School of Business, Department of Economics.
  25. Evans, David S, 1987. "Tests of Alternative Theories of Firm Growth," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 657-74, August.
  26. Luis Garicano & Esteban Rossi-Hansberg, 2004. "Inequality and the Organization of Knowledge," American Economic Review, American Economic Association, vol. 94(2), pages 197-202, May.
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