Power Laws in Firm Productivity

Takayuki Mizuno, Atushi Ishikawa, Shouji Fujimoto and Tsutomu Watanabe

No 11, Working Paper Series from Center for Interfirm Network, Institute of Economic Research, Hitotsubashi University

Abstract: We estimate firm productivity for about 3.2 million firms from 30 countries. We find that the distribution of firm productivity in each country, which is measured by total factor productivity (TFP), has a power law upper tail. However, the power law exponent of a TFP distribution in a country tends to be greater than that of a sales distribution in that country, indicating that the upper tail of a TFP distribution is less heavy compared to that of a sales distribution. We also find that the power law exponent of a TFP distribution tends to be greater than the power law exponents associated with the number of workers or tangible fixed assets. Given the idea that the sales of a firm is determined by the amount of various inputs employed by the firm (i.e., "production function" in the terminology of economics), these results suggest that the heavy tail of a sales distribution in a country comes not from the tail of a TFP distribution, but from the tail of the distribution of the number of workers or tangible fixed assets.

Pages: 12 pages
Date: 2011-11
New Economics Papers: this item is included in nep-bec and nep-eff
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