The firm size distribution in a small open economy : theory and evidence

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Title: The firm size distribution in a small open economy : theory and evidence
Authors: Walsh, Patrick P.
Li, Qi
Permanent link: http://hdl.handle.net/10197/2675
Date: Jul-2009
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 2 parameters, and a good return at the lower tail, where the Logarithmic effects are endogenously driven by firm heterogeneity in estimated structural parameters.
Funding Details: Not applicable
Type of material: Working Paper
Publisher: University College Dublin. Geary Institute
Subject LCSH: Business enterprises--Size--Econometric models
Industrial organization--Econometric models
Language: en
Status of Item: Not peer reviewed
Appears in Collections:Geary Institute Working Papers

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