Scandinavian Working Papers in Economics

Ratio Working Papers,
The Ratio Institute

No 158: When is Gibrat's Law a Law?

Sven-Olov Daunfeldt () and Niklas Elert ()
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Sven-Olov Daunfeldt: The Ratio Institute, Postal: The Ratio Institute, P.O. Box 3203, SE-103 64 Stockholm, Sweden
Niklas Elert: The Ratio Institute, Postal: The Ratio Institute, P.O. Box 3203, SE-103 64 Stockholm, Sweden

Abstract: The purpose of this paper is to investigate if the industry context matters for whether Gibrat's law is rejected or not using a dataset that consists of all limited firms in 5-digit NACE-industries in Sweden during 1998-2004. The results reject Gibrat's law on an aggregate level, since small firms grow faster than large firms. However, Gibrat's law is confirmed about as often as it is rejected when industry-specific regressions are estimated. It is also found that the industry context - e.g., minimum efficient scale, market concentration rate, and number of young firms in the industry - matters for whether Gibrat's law is rejected or not.

Keywords: Firm growth; firm size; job creation; small firms

JEL-codes: L11; L25; L26

38 pages, November 29, 2010

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