On Size and Growth of Business Firms

Physica A, Vol. 324, No. 1-2, pp. 38-44, 2003

Posted: 20 Nov 2007 Last revised: 24 Dec 2007

See all articles by Gianni De Fabritiis

Gianni De Fabritiis

Institut Municipal d'Investigacio Medica

Fabio Pammolli

Polytechnic University of Milan - Department of Management, Economics and Industrial Engineering; CERM Foundation

Massimo Riccaboni

KU Leuven - Department of Managerial Economics, Strategy, and Innovation; IMT Institute for Advanced Studies

Abstract

We study size and growth distributions of products and business firms in the context of a given industry. Firm size growth is analyzed in terms of two basic mechanisms, i.e., the increase of the number of new elementary business units and their size growth. We find a power-law relationship between size and the variance of growth rates for both firms and products, with an exponent between â2120.17 and â2120.15, with a remarkable stability upon aggregation. We then introduce a simple and general model of proportional growth for both the number of firm independent constituent units and their size, which conveys a good representation of the empirical evidences. This general and plausible generative process can account for the observed scaling in a wide variety of economic and industrial systems. Our findings contribute to shed light on the mechanisms that sustain economic growth in terms of the relationships between the size of economic entities and the number and size distribution of their elementary components.

Keywords: Firm growth, Power laws, Gibratâ's law, Economic growth, Pharmaceutical industry

Suggested Citation

De Fabritiis, Gianni and Pammolli, Fabio and Riccaboni, Massimo, On Size and Growth of Business Firms. Physica A, Vol. 324, No. 1-2, pp. 38-44, 2003, Available at SSRN: https://ssrn.com/abstract=1031381

Gianni De Fabritiis

Institut Municipal d'Investigacio Medica ( email )

Doctor Aiguader, 88
Barcelona, 08033
Spain

Fabio Pammolli (Contact Author)

Polytechnic University of Milan - Department of Management, Economics and Industrial Engineering ( email )

Via Lambruschini 4C - building 26/A
Milano, 20156
Italy

CERM Foundation ( email )

Via Fiorentina, 1
Siena, Siena 53100
Italy

HOME PAGE: http://www.cermlab.it

Massimo Riccaboni

KU Leuven - Department of Managerial Economics, Strategy, and Innovation ( email )

Naamsestraat 69 bus 3500
Leuven, 3000
Belgium

IMT Institute for Advanced Studies ( email )

Complesso San Micheletto
Lucca, 55100
Italy

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
710
PlumX Metrics