Growth and the Size Distribution of Firms

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