Firm size in the Netherlands

Jos Strobbe

No N200211, Scales Research Reports from EIM Business and Policy Research

Abstract: Developments in firm size and its distribution have always been one of the main issues in economic research. Due to several trends in the economic structure some authors expected a shift from large to small firms (for example Audretsch and Thurik 2000). In the underlying thesis I will investigate whether this prediction has come true in the Netherlands for the period 1993-1998. At first, a theoretical framework on firm size and its determinants is provided. The following determinants are described: globalisation, technological development, deregulation, uncertainty, labour developments, knowledge and prosperity. These determinants do not have a value on their own; they should be explained from a theoretical framework, which is why the main theories on firm size are used as frameworks. The following theories are discussed: Transaction Costs Economics, Life Cycle Theory, Gibrat's Law, Learning Theories and the Theory of Market Configurations. These are combined with the determinants. This leads to predictions on developments in average firm size. An empirical analysis is carried out in order to provide more insight in changes in firm size distributions in 68 industries. From this, it follows that especially manufacturing and construction industries are characterised by a decrease in average firm size, while the opposite is true for retail and hospitality industries. So, the hypothesis that trends lead to a general decrease in average firm size is not supported during the sample period. The combination with the theoretical predictions does not lead to spectacular results. Globalisation, deregulation and prosperity have a significant explanatory value, but this depends on the theoretical framework chosen.

Pages: 44 pages
Date: 2002-02-01
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