Firm Size Dynamics in the Aggregate Economy

46 Pages Posted: 24 May 2005

See all articles by Esteban Rossi-Hansberg

Esteban Rossi-Hansberg

Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Mark L. J. Wright

Federal Reserve Banks - Federal Reserve Bank of Minneapolis

Date Written: April 2005

Abstract

Why do firm growth and exit rates decline with size? What determines the size distribution of firms? This paper presents a theory of firm dynamics that simultaneously rationalizes the basic facts on firm growth, exit, and size distributions. The theory emphasizes the accumulation of industry specific human capital in response to industry specific productivity shocks. The theory implies that firm growth and exit rates should decline faster with size, and the size distribution should have thinner tails, in sectors that use human capital less intensively, or correspondingly, physical capital more intensively. In line with the theory, we document substantial sectoral heterogeneity in US firm dynamics and firm size distributions, which is well explained by variation in physical capital intensities.

Suggested Citation

Rossi-Hansberg, Esteban Alejandro and Wright, Mark L.J., Firm Size Dynamics in the Aggregate Economy (April 2005). NBER Working Paper No. w11261. Available at SSRN: https://ssrn.com/abstract=705581

Esteban Alejandro Rossi-Hansberg (Contact Author)

Princeton University - Department of Economics ( email )

Princeton, NJ
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Mark L.J. Wright

Federal Reserve Banks - Federal Reserve Bank of Minneapolis ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
40
Abstract Views
723
PlumX Metrics