Firms, firm size distributions, industrial policies

Firms are not abstract, profit-seeking units as often assumed in neoclassical models, but historically situated, socially embedded, and organizationally adaptive entities. Firms evolve through continuous interaction with their environment, shaped by routines, bounded rationality, and the co-development of institutions and technologies. This comprehensive lens provides a richer understanding of firm behavior, accounting for the observed diversity across firms, the persistence of structural asymmetries, and the heterogeneous conditions under which firms grow, stagnate, or exit the market. These firm-level dynamics unfold within markets that are themselves evolving systems. Rather than tending toward a stable equilibrium, markets are shaped by feedback loops, path dependencies [path dependency], and innovation-driven competition. Entry and exit, firm growth, and shifts in market structure are not merely responses to price signals but outcomes of learning processes, strategic interactions, and institutional arrangements [Institutions]. As a result, market outcomes reflect complex adaptive dynamics rather than simple allocative efficiency. In this view, successful industrial policy is not limited to correcting market failures or achieving short-term efficiency gains. Rather, industrial policy is a dynamic and systemic process. This process contributes to long-term learning, structural transformation, and the strategic capacities of economies. Effective policies must therefore be reflexive, transparent, and collaborative, evolving alongside the systems they intend to shape.