Edited by Michael Dietrich and Jackie Krafft
Alex Coad and Werner Hölzl 24.1 INTRODUCTION Firm growth and decline is at the core of economic dynamics. Since the beginning of research in economics there has been an interest in firm growth. Especially in Marshall’s (1920) version of neoclassical economics, heterogeneous firms and their organization are the driving forces behind economic change. However, the failure of the Marshallian integration of evolution and equilibrium was the ultimate reason for the redefinition of the representative firm into the language of static competition by Pigou (Moss, 1984). Empirical work began to flourish with the availability of representative and comprehensive data sets. As a result, much work has been done, usually taking the form of regressions in which the growth rate of a firm is the dependent variable, and attempts are made to explain this in terms of a long list of other variables. This new literature on firm growth confirms the important role of heterogeneity and shows that firm growth is highly idiosyncratic and difficult to predict. At the same time new empirical regularities were discovered, such as the finding that those growth rate distributions follow a ‘tentshaped’ pattern. The chapter starts with definitions of firm growth used in the empirical literature, before discussing the growth rate distribution and research into the determinants of growth rates. We also discuss the contribution of fast-growth firms to economic growth. 24.2 MEASURING FIRM GROWTH The number of possible indicators of firm size is rather vast. Most commonly employment or total sales are used in...
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