Establishment Size Dynamics in the Aggregate Economy

By Esteban Rossi-Hansberg, Mark L. J. Wright. 2007

307 citations recorded by the source corpus.

Why do growth and net exit rates of establishments decline with size? What determines the size distribution of establishments? This paper presents a theory of establishment dynamics that simultaneously rationalizes the basic facts on economy-wide establishment growth, net exit, and size distributions. The theory emphasizes the accumulation of industry-specific human capital in response to industry-specific productivity shocks. It predicts that establishment growth and net exit rates should decline faster with size and that the establishment size distribution should have thinner tails in sectors that use human capital less intensively or physical capital more intensively. In line with the theory, the data show substantial sectoral heterogeneity in U.S. establishment size dynamics and distributions, which is well explained by variation in physical capital intensity.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/d2f09f0e75a19184cf7e65a9dab5d3ae4f3416ad

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Citations in the corpus

Firm entry, trade, and welfare in Zipf's world (2013, unknown): “What do the data tell us about ζ? Available estimates put it very close to 1, suggesting that the distribution of firm size follows “Zipf’s Law” (Zipf 1949). Figure 1 reproduces the now famous power law for firm size in the U.S. estimated by Axtell (2001). The fit of this relationship is typically v”
Firm Dynamics, Job Turnover, and Wage Distributions in an Open Economy (2016, unknown): “viewed as an extension of Bertola and Caballero (1994); Bertola and Garibaldi (2001); and Koeniger and Prat (2007) to include fully articulated product markets, international trade, serially correlated productivity shocks, intermediate inputs, and endogenous firm entry and exit.”
Firm Size Distribution under Horizontal and Vertical R&D (2010, methodology): “…(2001) predicts that rm size, measured as sales per rm, is stationary along the BGP. 8The focus on normalised rm size i.e., rm size divided by its average in order to analyse the shape of the steady-state FSD when size is non-stationary has been conducted by, e.g., Rossi-Hansberg and Wright (2007).”
Innovation by entrants and incumbents (2015, unknown): “…root in rm growth and appears to be a good approximation to the data (see, for example, Sutton (1997) and Sutton (1998)), even though detailed analysis shows signi cant deviations from Gibrat s Law for small rms, see, for example, Hall (1987), Akcigit (2010) and Rossi-Hansberg and Wright (2007a).”
Multi-product firms and product switching (2006, unknown): “Existing empirical research on this issue examines whether firm growth is independent of firm size (i.e., Gibrat’s Law) or whether it exhibits age or scale dependence (see for example Sutton 1997, Cooley and Quadini 2001, Albuquerque and Hopenhayn 2002 and Rossi-Hansberg and Wright 2005).”
Endowment Structures, Industrial Dynamics, and Economic Growth (2009, background): “Third, it may be fruitful to incorporate firm heterogeneity into each industry and study the entry, exit, and growth of firms within different industries together with industrial dynamics (see Hopenhayn, 1992; Luttmer, 2007; Rossi-Hansberg and Wright, 2007; Samaniego, 2010).”
On the mechanics of firm growth (2011, unknown): “[40] Rossi-Hansberg, Esteban and Mark L.”
The empirics of new economic geography (2010, unknown): “…and Gibrat’s Laws has been purely statistical, recent years have seen the development of economic models that generate one or more of these relationships from microeconomic foundations, including in particular Gabaix (1999), Eeckhout (2004), Duranton (2007), and Rossi-Hansberg and Wright (2007).”