When is Gibrat’s law a law?
- 584 Downloads
The purpose of this article is to investigate if the industry context matters for whether Gibrat’s law is rejected or not using a dataset that consists of all limited firms in five-digit NACE-industries in Sweden during 1998–2004. The results reject Gibrat’s law on an aggregate level, since small firms grow faster than large firms. However, Gibrat’s law is confirmed about as often as it is rejected when industry-specific regressions are estimated. It is also found that the industry context—e.g., minimum efficient scale, market concentration rate, and number of young firms in the industry—matters for whether Gibrat’s law is rejected or not.
KeywordsFirm growth Firm size Job creation Small firms
JEL ClassificationsD22 L11 L25 L26
We would like to thank Daniel Halvarsson, two anonymous referees, and participants at the 2010 Ratio Colloquium for Young Social Scientists for valuable comments.
- Audretsch, D. B., & Elston, J. A. (2010). On the relationship between firm size and growth: Have we been asking the wrong questions? Working paper presented at the Ratio Colloquium for Young Social Scientists, Stockholm.Google Scholar
- Bottazzi, G., Coad, A., Jacoby, N., & Secchi, A. (2005). Corporate growth and industrial dynamics: Evidence from French Manufacturing. Pisa, Sant’Anna School of Advanced Studies, LEM Working Paper Series 2005/21.Google Scholar
- Caves, R. E. (1998). Industrial organization and new findings on the turnover and mobility of firms. Journal of Economic Literature, 36(4), 1947–1982.Google Scholar
- Coad, A. (2007). Empirical investigations into the characteristics and determinants of the growth of firms. Doctorat Sciences Economiques, Université Paris 1.Google Scholar
- Coad, A. (2009). The growth of firms: A survey of theories and empirical evidence. Northampton, MA: Edward Elgar.Google Scholar
- Delmar, F. (1997). Measuring growth: Methodological considerations and empirical results. In R. Donkels & A. Miettinen (Eds.), Entrepreneurship and SME research: On its way to the next millennium. Aldershot, UK: Ashgate Publishing, pp. 199–215.Google Scholar
- Fertö, I., & Bakucs, L. Z. (2009). Gibrat’s law revisited in a transition economy: The Hungarian case. Empirical Economic Letters, 8(3), 54–7.Google Scholar
- Gibrat, R. (1931). Les inégalités économiques. Paris: Librairie du Receuil Sirey.Google Scholar
- Hall, B., & Mairesse, J. (2005). Testing for unit roots in panel data: An exploration using real and simulated data. In D. Andrews & J. Stock (Eds.), Identification and inference for econometric models. Cambridge, Cambridge University Press.Google Scholar
- Kennedy, P. (1985). A guide to econometrics. Cambridge, MA: MIT Press.Google Scholar
- Kirzner, I. (1997). Entrepreneurial discovery and the competitive market process: An Austrian approach. Journal of Economic Literature, 35, 60–85.Google Scholar
- Knight, F. H. (1921). Risk uncertainty and profit. Boston: Shaffner & Marx.Google Scholar
- Mansfield, E. (1962). Entry, Gibrat’s law, innovation and the growth of firms. American Economic Review, 52(5), 1023–1051.Google Scholar
- Ribeiro, E. P. (2007). The dynamics of firm size distribution. Brazilian Review of Econometrics, 27(2), 199–223.Google Scholar
- Sutton, J. (1991). Sunk costs and market structure: Price competition, advertising, and the evolution of concentration. Cambridge, MA: MIT Press.Google Scholar
- Sutton, J. (1997). Gibrat’s legacy. Journal of Economic Literature, 35(1), 40–59.Google Scholar