Growth and the Size Distribution of Firms

36 Pages Posted: 29 Jun 2005

See all articles by Erzo G. J. Luttmer

Erzo G. J. Luttmer

University of Minnesota - Twin Cities - Department of Economics

Date Written: May 16, 2005

Abstract

This paper describes an analytically tractable model of balanced growth that is consistent with the observed size distribution of firms. Growth is the result of idiosyncratic firm productivity improvements, selection of successful firms, and imitation by potential entrants. The empirical phenomon of Zipf's law can be interpreted to mean that entry costs are high and that imitation is difficult. Lowering barriers to entry tends to speed up the rate at which selection improves aggregate productivity, and this increases the growth rate of the economy.

Keywords: Technological change, imitation, selection

JEL Classification: L11, O30

Suggested Citation

Luttmer, Erzo G. J., Growth and the Size Distribution of Firms (May 16, 2005). Available at SSRN: https://ssrn.com/abstract=752864 or http://dx.doi.org/10.2139/ssrn.752864

Erzo G. J. Luttmer (Contact Author)

University of Minnesota - Twin Cities - Department of Economics ( email )

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HOME PAGE: http://www.econ.umn.edu/~luttmer

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