Establishment size dynamics in the aggregate economy

Esteban Rossi-Hansberg and Mark Wright

No 382, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: 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.

Keywords: Economies; of; scale (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-bec, nep-dge, nep-ent, nep-mac and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

Downloads: (external link)
http://www.minneapolisfed.org/research/SR/SR382.pdf
http://www.minneapolisfed.org/research/common/pub_detail.cfm?pb_autonum_id=1075 (application/pdf)

Related works:
Journal Article: Establishment Size Dynamics in the Aggregate Economy (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:382

Access Statistics for this paper

More papers in Staff Report from Federal Reserve Bank of Minneapolis Contact information at EDIRC.
Bibliographic data for series maintained by Kate Hansel (kate.s.hansel@mpls.frb.org).