Gibrat's Law: Are the Services Different?
David B. Audretsch
Indiana University - Institute for Development Strategies; King Saud University; WHU - Otto Beisheim School of Management; Indiana University Bloomington - School of Public & Environmental Affairs (SPEA)
Erasmus Research Institute of Management (ERIM)
Erasmus University Rotterdam (EUR) - Centre for Advanced Small Business Economics (CASBEC); Erasmus Research Institute of Management (ERIM); EIM Netherlands - Business and Policy Research; Tinbergen Institute
22 2002 1,
ERIM Report Series Reference No. ERS-2002-04-STR
Several noted surveys on intra-industry dynamics have recently reached the conclusion from a large body of evidence that Gibrat's Law does not hold. However, almost all of these studies have been based on manufacturing. There are compelling reasons to doubt whether these findings hold for the services. In this paper we examine whether the basic tenet underlying Gibrat's Law - that growth rates are independent of firm size - can be rejected for the services as it has been for manufacturing. Based on a large sample of Dutch firms the evidence suggests that growth rates are, in fact, independent of firm size. Validation of Gibrat's Law in the services suggests that the dynamics of industrial organisation for services may not simply mirror that for manufacturing.
Number of Pages in PDF File: 30
Keywords: firm growth, service industries, Gibrat's Law
JEL Classification: M, L20, D21
Date posted: February 21, 2003