Small Business Economics

, Volume 35, Issue 2, pp 153–168 | Cite as

Firm size, age, industrial networking, and growth: a case of the Korean manufacturing industry

  • Younsuk Park
  • Jaeun Shin
  • Taejong Kim


This paper investigates the roles of firm size, age, and industrial networking in determining firm growth. Analyses using the 2-year panel data of 7,889 Korean manufacturing firms between 1994 and 2003 confirm that firm size and age have significant negative effects on firm growth and significant positive impacts on firm survival. R&D and export activities are found to facilitate both firm growth and survival. The primary focus of this study is to examine the effects of industrial networking, such as subcontracting and clustering, on firm growth. The results show that subcontracting does not yield any positive effect for firm growth, but encumbers survival, which may be accounted for by the high subcontracting intensity among small firms. Clustering, on the other hand, is found to promote firm growth and survival. There is, however, little evidence that such a positive effect of clustering is derived from network externalities through cooperation and competition among firms in a cluster per se.


Firm growth Industrial networking Subcontracting Clustering Korean manufacturing industry 

JEL Classifications

L14 L25 L26 L52 L60 O25 


  1. Acs, Z. J., & Audretsch, D. B. (1990). Innovation and small firms. Cambridge, MA: The MIT Press.Google Scholar
  2. Almus, M., & Nerlinger, E. A. (2000). Testing Gibrat’s Law for young firms—empirical results for West Germany. Small Business Economics, 15(1), 1–12.CrossRefGoogle Scholar
  3. Altenburg, T., & Meyer-stamer, J. (1999). How to promote clusters: Policy experiences from Latin America. World Development, 27(9), 1693–1713.CrossRefGoogle Scholar
  4. Aslan, A. (2008). Testing Gibrat’s law: Empirical evidence from panel unit root tests of Turkish firms. International Research Journal of Finance and Economies, 16, 137–142.Google Scholar
  5. Audretsch, D. B., Klomp, L., Santarelli, E., & Thurik, A. R. (2004). Gibrat’s law: Are the services different? Review of Industrial Organization, 24(3), 301–324.CrossRefGoogle Scholar
  6. Bennet, R. J., Graham, D. J., & Bratton, W. (1999). The location and concentration of business in Britain: Business clusters, business services, market coverage and local economic development. Transactions of the Institute of British Geographers, New Series, 24, 393–420.CrossRefGoogle Scholar
  7. Berry, A. (1997). SME competitiveness: The power of networking and subcontracting. Washington, DC: Inter-American Development Bank.Google Scholar
  8. Bok, D. K., Koh, J. M., Shim, S. M., & Koh, Y. S. (2002). Strategies for developing industrial clusters and related Korean and overseas case. Seoul: Samsung Economics Research Institute (in Korean).Google Scholar
  9. Caves, R. (1998). Industrial organization and new findings on the turnover and mobility of firms. Journal of Economic Literature, 36(4), 1947–1982.Google Scholar
  10. Chen, M. C. (2002). Industrial district and social capital in Taiwan’s economic development. Ph.D. Dissertation, Yale University.Google Scholar
  11. Chen, J., & Lu, W. (2003). Panel unit root tests of firm size and its growth. Applied Economics Letters, 10(6), 343–345.CrossRefGoogle Scholar
  12. Cho, Y. S. (2005). Forecasting on the shape of innovative cluster in Seoul digital complex and policy theme. Korean Regional Development Association Paper, 17(1), 73–90 (in Korean).Google Scholar
  13. Contini, B., & Revelli, R. (1989). The relationship between firm growth and labor demand. Small Business Economics, 1(4), 309–314.CrossRefGoogle Scholar
  14. Das, S. (1995). Size, age and firm growth in an infant industry: The computer hardware industry in India. International Journal of Industrial Organization, 13(1), 111–125.CrossRefGoogle Scholar
  15. DeCarolis, D. M., & Deeds, D. L. (1999). The impact of stocks and flows of organizational knowledge on firm performance: An empirical investigation of the biotechnology industry. Strategic Management Journal, 20(10), 953–968.CrossRefGoogle Scholar
  16. Del Monte, A., & Papagni, E. (2003). R&D and the growth of firms: An empirical analysis of a panel of Italian firms. Research Policy, 32(6), 1003–1014.CrossRefGoogle Scholar
  17. Delmar, F. (1997). Measuring growth: Methodological considerations and empirical results. In D. Donckels & A. Miettinen (Eds.), Entrepreneurship and SME Research: On its way to the next millennium. Aldershot, UK: Ashgate.Google Scholar
  18. Delmar, F., Davidsson, P., & Gartner, W. (2003). Arriving at the high-growth firm. Journal of Business Venturing, 18(2), 189–216.CrossRefGoogle Scholar
  19. Doms, M., Dunne, T., & Roberts, M. J. (1995). The role of technology use in the survival and growth of manufacturing plants. International Journal of Industrial Organization, 13, 523–542.CrossRefGoogle Scholar
  20. Dore, R. (1983). Goodwill and the sprit of market capitalism. British Journal of Society, 34, 459–482.CrossRefGoogle Scholar
  21. Dunne, P., & Hughes, A. (1994). Age, size, growth and survival: UK companies in the 1980s. Journal of Industrial Economics, 42(2), 115–140.CrossRefGoogle Scholar
  22. Dunne, T., Roberts, M. J., & Samuelson, L. (1989). The growth and failure of manufacturing plants. Quarterly Journal of Economics, 104, 671–698.CrossRefGoogle Scholar
  23. Ericson, R., & Pakes, A. (1995). Markov-perfect industry dynamics: A framework for empirical work. The Review of Economics Studies, 62(1), 53–82.CrossRefGoogle Scholar
  24. Evans, D. S. (1987a). Tests of alternative theories of firm growth. Journal of Political Economy, 95(4), 657–674.CrossRefGoogle Scholar
  25. Evans, D. S. (1987b). The relationship between firm growth, size and age: Estimates for 100 manufacturing industries. Journal of Industrial Economics, 35(4), 567–581.CrossRefGoogle Scholar
  26. Farinos, J. C., & Moreno, L. (2000). Firms’ growth, size and age: A nonparametric approach. Review of Industrial Organization, 17, 249–265.CrossRefGoogle Scholar
  27. Fingleton, B., Igliori, C., & Moore, B. (2004). Employment growth of small high-technology firms and the role of horizontal clustering: Evidence from computing services and R&D in Great Britain, 1991–2000. Urban Studies, 41(4), 773–799.CrossRefGoogle Scholar
  28. FitzRoy, F. R., & Kraft, K. (1991). Firm size, growth and innovation: Some evidence from West Germany. In Z. J. Acs & D. B. Audretsch (Eds.), Innovation and technological change: An international comparison. New York: Harvester Wheatsheaf.Google Scholar
  29. Friedman, D. (1988). The misunderstood miracle: Industrial development and political change in Japan. New York: Cornell University Press.Google Scholar
  30. Geroski, P. A. (1995). What do we know about entry? International Journal of Industrial Organization, 13(4), 421–440.CrossRefGoogle Scholar
  31. Geroski, P. A., Lazarova, S., Urga, G., & Walters, F. (2003). Are differences in firm size transitory or permanent? Journal of Applied Econometrics, 18(1), 47–59.CrossRefGoogle Scholar
  32. Gibrat, R. (1931). Les Inegalites Economiques. Paris: Librairie du Recueil Sirey.Google Scholar
  33. Goddard, J., McKillop, D., & Wilson, J. (2005). Panel unit root tests of the size and growth of large US credit unions. Managerial Finance, 31(11), 36–49.CrossRefGoogle Scholar
  34. Goddard, J., Wilson, J., & Blandon, P. (2002). Panel tests of Gibrat’s law for Japanese manufacturing. International Journal of Industrial Organization, 20(3), 415–433.CrossRefGoogle Scholar
  35. Grabher, G. (1993). The embedded firm: On the socioeconomics of industrial networks. London: Routledge.Google Scholar
  36. Hall, B. H. (1987). The relationship between firm size and firm growth in the US manufacturing sector. Journal of Industrial Economics, 35(4), 583–606.CrossRefGoogle Scholar
  37. Harhoff, D., Stahl, K., & Woywode, M. (1998). Legal form, growth and exit of West German firms–empirical results for manufacturing, construction, trade and service industries. Journal of Industrial Economics, 46(4), 453–488.CrossRefGoogle Scholar
  38. Hart, P. E., & Oulton, N. (1996). Growth and size of firms. Economic Journal, 106(3), 1242–1252.CrossRefGoogle Scholar
  39. Hassink, R. (2001). Towards regionally embedded innovation support systems in South Korea? Case studies from kyongbuk-taegu and kyonggi. Urban Studies, 38(8), 1373–1395.Google Scholar
  40. Hayashi, M. (2005). SMEs, subcontracting and economic development in Indonesia: With reference to Japan’s experience. Tokyo: Japan International Cooperation Publishing.Google Scholar
  41. Heckman, J. (1979). Sample selection bias as a specification error. Econometrica, 47(1), 153–161.CrossRefGoogle Scholar
  42. Heshmati, A. (2001). On the growth of micro and small firms: Evidence from Sweden. Small Business Economics, 17, 213–228.CrossRefGoogle Scholar
  43. Hill, J., & Naroff, J. L. (1984). The effect of location on the performance of high-technology firms. Financial Management, 13, 27–36.CrossRefGoogle Scholar
  44. Hymer, S., & Pashigian, P. (1962). Firm size and rate of growth. Journal of Political Economy, 52, 556–569.CrossRefGoogle Scholar
  45. Iammarino, S., & McCann, P. (2006). The structure and evolution of industrial clusters: Transactions, technology and knowledge spillovers. Research Policy, 35(7), 1018–1036.CrossRefGoogle Scholar
  46. Im, K., Pesaran, H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115, 53–74.CrossRefGoogle Scholar
  47. Johnson, C. (1982). MITI and the Japanese miracle: The growth of industrial policy (pp. 1925–1975). Stanford, CA: Stanford University Press.Google Scholar
  48. Jovanovic, B. (1982). Selection and evolution of industry. Econometrica, 50, 649–670.CrossRefGoogle Scholar
  49. Koh, S. C. (2004). The formation of innovative clusters and schemes for developing them in Korea. Korean Regional Development Association, presented at the summer science meeting (in Korean).Google Scholar
  50. Korea Federation of Small and Medium Business. (2005). Survey of small and medium enterprises. Seoul: KFSB (in Korean).Google Scholar
  51. Korea Federation of Small and Medium Business. (2007). Survey of small and medium enterprises. Seoul: KFSB (in Korean).Google Scholar
  52. Korea Ministry of Commerce, Industry, Energy, and Korea Industrial Complex Corporation. (2008). Statistics on industrial complex in Korea. Seoul: KICC (in Korean).Google Scholar
  53. Korea National Statistical Office. (2004). The report on Industrial Census 2003. Seoul: KNSO (in Korean).Google Scholar
  54. Kumar, M. S. (1985). Growth, acquisition activity and firm size: Evidence from the United Kingdom. Journal of Industrial Economics, 33(3), 327–338.CrossRefGoogle Scholar
  55. Liu, J. T., Tsou, M. W., & Hammitt, J. K. (1999). Do small plants grow faster? Evidence from the Taiwan electronics industry. Economics Letters, 65(1), 121–129.CrossRefGoogle Scholar
  56. Lotti, F., Santarelli, E., & Vivarelli, M. (2003). Does Gibrat’s Law hold among young, small firms? Journal of Evolutionary Economics, 13(3), 213–235.CrossRefGoogle Scholar
  57. Mansfield, E. (1962). Entry, Gibart’s law, innovation, and the growth of firms. American Economic Review, 52(5), 1023–1051.Google Scholar
  58. Marshall, A. (1920). Principles of economics. London: Macmillan.Google Scholar
  59. Mata, J. (1994). Firm growth during infancy. Small Business Economics, 6, 27–93.CrossRefGoogle Scholar
  60. McDougall, P. P., & Oviatt, B. M. (1997). International entrepreneurship literature in 1990s and directions for future research. In D. L. Sexton & R. W. Smilor (Eds.), Entrepreneurship 2000 (pp. 291–320). Chicago, IL: Upstart.Google Scholar
  61. McPherson, M. A. (1996). Growth of micro and small enterprises in Southern Africa. Journal of Development Economics, 48(2), 253–277.CrossRefGoogle Scholar
  62. Narula, R., & Santangelo, G. (forthcoming). Location, collocation and R&D alliances in the European ICT industry. Research Policy.Google Scholar
  63. Nishiguchi, T. (1994). Strategic industrial sourcing: The Japanese advantage. New York: Oxford University Press.Google Scholar
  64. Nugent, J. B. (1996). What explains the trend reversal in the size distribution of Korean manufacturing establishments? Journal of Development Economics, 48, 225–251.CrossRefGoogle Scholar
  65. Nugent, J. B., & Yhee, S. J. (2002). Small and medium enterprises in Korea: Achievements, constraints and policy issues. Small Business Economics, 18(1), 85–119.CrossRefGoogle Scholar
  66. Oliveira, B., & Fortunato, A. (2006). Testing Gibrat’s law: Empirical evidence from a panel of Portuguese manufacturing firms. International Journal of the Economics of Business, 13(1), 65–81.CrossRefGoogle Scholar
  67. Organization for Economic Co-operation and Development. (1999). Boosting innovation: The cluster approach. Paris: OECD.Google Scholar
  68. Organization for Economic Co-operation and Development. (2001). Innovative clusters: Drivers of national innovation systems. Paris: OECD.Google Scholar
  69. Organization for Economic Co-operation and Development. (2002). High-growth SMEs and employment. Paris: OECD.Google Scholar
  70. Park, Y. (2006). Essays on industrial networking and small and medium firms. Ph.D. Dissertation, KDI School of Public Policy and Management. Google Scholar
  71. Pavitt, K. (1987). On the nature of technology. Mimeo, Science Policy Research Unit, University of Sussex.Google Scholar
  72. Piore, M. J., & Sabel, C. F. (1984). The second industrial divide: Possibilities for prosperity. New York: Basic Books.Google Scholar
  73. Porter, M. (1990). The competitive advantage of nations. New York: The Free Press.Google Scholar
  74. Porter, M. (1998). On competition. Boston: Harvard Business School Press.Google Scholar
  75. Powell, W. (1990). Neither market nor hierarchy: Network forms of organization. Research in Organizational Behavior, 12, 295–336.Google Scholar
  76. Rauch, J. E. (1999). Networks versus markets in international trade. Journal of International Economics, 48, 7–35.CrossRefGoogle Scholar
  77. Reid, G. C. (1993). Growth and its determinants. In Small business enterprises: An economic analysis (pp. 187–207). New York, NY: Routledge.Google Scholar
  78. Samuels, J. M. (1965). Size and growth of firms. Review of Economic Studies, 32(1), 105–112.Google Scholar
  79. Saxenian, A. L. (1994). Regional advantage: Culture and competition in silicon valley and Route 128. Cambridge: Harvard University Press.Google Scholar
  80. Seo, J. D., & Park, S. C. (2003). A study for the development of the Korean industrial complex. Seoul: Korea Small Business Institute (in Korean).Google Scholar
  81. Simon, H. A., & Bonini, C. P. (1958). The size distribution of business firms. American Economic Review, 48(4), 607–617.Google Scholar
  82. Singh, A., & Whittington, G. (1975). The size and growth of firms. Review of Economic Studies, 42(1), 15–26.CrossRefGoogle Scholar
  83. Song, C. J., et al. (2004). A study for developing cooperative business model between large and small companies. Seoul: Korean Small Business Institute (in Korean).Google Scholar
  84. Sutton, J. (1997). Gibrat’s legacy. Journal of Economic Literature, 35(1), 40–59.Google Scholar
  85. Wagner, J. (1992). Firm size, firm growth, and persistence of chance: Testing Gibrat’s Law with establishment data from lower Saxony. Small Business Economics, 4(2), 125–131.CrossRefGoogle Scholar
  86. Weiss, C. R. (1998). Size, growth, and survival in the upper Austrian farm sector. Small Business Economics, 10(4), 305–312.CrossRefGoogle Scholar
  87. White, H. (1980). A Heteroscedasticity—consistent covariance matrix estimator and a direct test for heteroscedasticity. Econometrica, 48(4), 817–838.CrossRefGoogle Scholar
  88. Wynarczyk, P., & Watson, R. (2005). Firm growth and supply chain partnerships: An empirical analysis of U. K. SME subcontractors. Small Business Economics, 24(1), 39–51.CrossRefGoogle Scholar
  89. Yasuda, T. (2005). Firm growth, size, age and behavior in Japanese manufacturing. Small Business Economics, 24(1), 1–15.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC. 2009

Authors and Affiliations

  1. 1.Centre for Institutional PerformanceUniversity of ReadingReadingUK
  2. 2.KDI School of Public Policy and ManagementSeoulKorea

Personalised recommendations