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Firm Size Dynamics in the Aggregate Economy

Author

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

Abstract

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.

Suggested Citation

  • Mark L.J. Wright & Esteban Rossi-Hansberg, 2004. "Firm Size Dynamics in the Aggregate Economy," 2004 Meeting Papers 878, Society for Economic Dynamics.
  • Handle: RePEc:red:sed004:878
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    References listed on IDEAS

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    Cited by:

    1. Rasmus Lentz & Dale T. Mortensen, 2008. "An Empirical Model of Growth Through Product Innovation," Econometrica, Econometric Society, vol. 76(6), pages 1317-1373, November.
    2. Emin Dinlersoz & Glenn MacDonald, 2009. "The Industry Life-Cycle of the Size Distribution of Firms," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(4), pages 648-667, October.
    3. Barnes, Sebastian & Price, Simon & Sebastia Barriel, Maria, 2008. "The elasticity of substitution: evidence from a UK firm-level data set," Bank of England working papers 348, Bank of England.
    4. Esteban Rossi-Hansberg & Mark L. J. Wright, 2007. "Urban Structure and Growth," Review of Economic Studies, Oxford University Press, vol. 74(2), pages 597-624.
    5. Piercarlo Zanchettin & Vincenzo Denicolò, 2009. "Leadership Cycles," Discussion Papers in Economics 09/25, Department of Economics, University of Leicester.
    6. Erzo G. J. Luttmer, 2004. "The size distribution of firms in an economy with fixed and entry costs," Working Papers 633, Federal Reserve Bank of Minneapolis.
    7. Sherrill Shaffer & Iftekhar Hasan & Mingming Zhou, 2015. "New Small Firms and Dimensions of Economic Performance," Economic Development Quarterly, , vol. 29(1), pages 65-78, February.

    More about this item

    Keywords

    Firm size; Industry equilibrium;

    JEL classification:

    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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