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The firm size distribution in a small open economy : theory and evidence
Author(s)
Date Issued
2009-07
Date Available
2011-01-05T15:00:58Z
Abstract
We construct a theoretical model of the dynamic processes (firm entry, growth,
decline, and exit) that underpin the determination of a limiting firm size distribution
(FSD). In particular, we model such dynamic processes using key structural
parameters; sunk cost, exogenous entry constraints, and opportunity values of finite
duration. The limiting FSD we derive, in steady state, turns out to be a combination of
a Logarithmic and Zipf distribution. We estimate these structural parameters using
long periods of Irish company data for defined cohorts of firms, in terms of trade
orientation, within narrowly defined industries. Within non-exporting and exporting
samples of companies our model fits the actual FSD well with a good return to the
Zipf distribution in the upper tail, that is less dependent on the estimated structural
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parameters, and a good return at the lower tail, where the Logarithmic effects are
endogenously driven by firm heterogeneity in estimated structural parameters.
Sponsorship
Not applicable
Type of Material
Working Paper
Publisher
University College Dublin. Geary Institute
Series
UCD Geary Institute Discussion Paper Series
WP 09 20
Classification
L11
F15
Subject – LCSH
Business enterprises--Size--Econometric models
Industrial organization--Econometric models
Web versions
Language
English
Status of Item
Not peer reviewed
This item is made available under a Creative Commons License
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