TY  - JOUR
AU  - Rossi-Hansberg,Esteban
AU  - Wright,Mark L.J.
TI  - Firm Size Dynamics in the Aggregate Economy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11261
PY  - 2005
Y2  - April 2005
UR  - http://www.nber.org/papers/w11261
L1  - http://www.nber.org/papers/w11261.pdf
N1  - Author contact info:
Esteban Rossi-Hansberg
Princeton University
Department of Economics
Fisher Hall
Princeton, NJ 08544-1021
Tel: 609/2584024
Fax: 650/725-5702
E-Mail: erossi@princeton.edu

Mark L. J. Wright
Federal Reserve Bank of Chicago
230 South LaSalle St.
Chicago, IL 60604
E-Mail: mlwright@econ.ucla.edu
AB  - Why do firm growth and exit rates decline with size? What determines the size distribution of firms? This paper presents a theory of firm dynamics that simultaneously rationalizes the basic facts on firm growth, exit, and size distributions. The theory emphasizes the accumulation of industry specific human capital in response to industry specific productivity shocks. The theory implies that firm growth and exit rates should decline faster with size, and the size distribution should have thinner tails, in sectors that use human capital less intensively, or correspondingly, physical capital more intensively. In line with the theory, we document substantial sectoral heterogeneity in US firm dynamics and firm size distributions, which is well explained by variation in physical capital intensities.
ER  -