The Growth of Business Firms: Theoretical Framework and Empirical Evidence

Fu, Dongfeng and Pammolli, Fabio and Buldyrev, Sergey V. and Riccaboni, Massimo and Matia, Kaushik and Yamasaki, Kazuko and Stanley, H. Eugene (2005): The Growth of Business Firms: Theoretical Framework and Empirical Evidence. Published in: Proceedings of the National Academy of Sciences , Vol. 102, No. 52 (19 December 2005): pp. 18801-18806.

Abstract

We introduce a model of proportional growth to explain the distribution of business firm growth rates. The model predicts that it is exponential in the central part and depicts an asymptotic power-law behavior in the tails with an exponent ζ = 3. Because of data limitations, previous studies in this field have been focusing exclusively on the Laplace shape of the body of the distribution. In this article, we test the model at different levels of aggregation in the economy, from products to firms to countries, and we find that the model’s predictions agree with empirical growth distributions and size-variance relationships.

• Item Type: MPRA Paper
• Language: English
• Keywords: proportional growth; preferential attachment; Laplace distribution
• Subjects: D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L25 - Firm Performance: Size, Diversification, and Scope; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence; D - Microeconomics > D3 - Distribution > D39 - Other; E - Macroeconomics and Monetary Economics > E0 - General > E01 - Measurement and Data on National Income and Product Accounts and Wealth ; Environmental Accounts; L - Industrial Organization > L0 - General > L00 - General; L - Industrial Organization > L6 - Industry Studies: Manufacturing > L60 - General; L - Industrial Organization > L6 - Industry Studies: Manufacturing > L65 - Chemicals ; Rubber ; Drugs ; Biotechnology; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L16 - Industrial Organization and Macroeconomics: Industrial Structure and Structural Change ; Industrial Price Indices; E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E17 - Forecasting and Simulation: Models and Applications

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