The Growth of Business Firms: Theoretical Framework and Empirical Evidence
Proceedings of the National Academy of Sciences, Vol. 102, No. 52, pp. 18801-18806, 2008
Posted: 21 Nov 2007 Last revised: 14 Aug 2009
We introduce a model of proportional growth to explain the distribution Pg(g) of business-firm growth rates. The model predicts that Pg(g) is exponential in the central part and depicts an asymptotic power-law behavior in the tails with an exponent z=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 predictions of the model agree with empirical growth distributions and size-variance relationships.
Keywords: proportional growth, preferential attachment, Laplace distribution
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