Firm Size Dynamics in the Aggregate Economy

Mark Wright

Santa Cruz Department of Economics, Working Paper Series from Department of Economics, UC Santa Cruz

Abstract: Why do firm growth and exit rates decline with size? What determines the size distribution of firms? This paper presents a theory of firm dynamics that simultaneously rationalizes the basic facts on firm growth, exit, and size distributions. The theory emphasizes the accumulation of industry specific human capital in response to industry specific productivity shocks. The theory implies that firm growth and exit rates should decline faster with size, and the size distribution should have thinner tails, in sectors that use human capital less intensively, or correspondingly, physical capital more intensively. In line with the theory, we document substantial sectoral heterogeneity in US firm dynamics and firm size distributions, which is well explained by variation in physical capital intensities.

Date: 2004-12-12
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Firm Size Dynamics in the Aggregate Economy (2005)
Working Paper: Firm Size Dynamics in the Aggregate Economy (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:cdl:ucscec:qt4rs4202s

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