Defending Gibrat's Law as a Long-run Regularity
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.
LOTTI Francesca;
SANTARELLI Enrico;
VIVARELLI Marco;
2007-10-15
SPRINGER
JRC40460
0921-898X,
https://publications.jrc.ec.europa.eu/repository/handle/JRC40460,
10.1007/s11187-007-9071-0,
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