An official website of the European Union How do you know?      
European Commission logo
JRC Publications Repository Menu

Defending Gibrat's Law as a Long-run Regularity

cover
According to Gibrat's Law of Proportionate Effect, the growth rate of a given firm is independent of its size at the beginning of the period examined. While earlier studies tended to confirm the Law, more recent research generally rejects it. This article reconciles these two streams of literature, taking into account the role of market selection and learning in reshaping a given population of firms through time. Consistently with previous studies, we find that Gibrat's Law has to be rejected ex ante, since smaller firms tend to grow faster than their larger counterparts. However, a significant convergence toward Gibrat-like behavior can be detected ex post. This finding is an indication that market selection "cleans" the original population of firms, so that the resulting industrial "core" does not depart from a Gibrat-like pattern of growth. From a theoretical point of view, this result is consistent with those models based on passive and active learning, and can be seen as a defense of the validity of the Law in the long-run.
2007-10-15
SPRINGER
JRC40460
0921-898X,   
https://publications.jrc.ec.europa.eu/repository/handle/JRC40460,   
10.1007/s11187-007-9071-0,   
Language Citation
NameCountryCityType
Datasets
IDTitlePublic URL
Dataset collections
IDAcronymTitlePublic URL
Scripts / source codes
DescriptionPublic URL
Additional supporting files
File nameDescriptionFile type 
Show metadata record  Copy citation url to clipboard  Download BibTeX
Items published in the JRC Publications Repository are protected by copyright, with all rights reserved, unless otherwise indicated. Additional information: https://ec.europa.eu/info/legal-notice_en#copyright-notice