American Economic Review: Vol. 97 No. 5 (December 2007)


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Establishment Size Dynamics in the Aggregate Economy

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Rossi-Hansberg, Esteban, and Mark L. J. Wright. 2007. "Establishment Size Dynamics in the Aggregate Economy." American Economic Review, 97(5): 1639-1666.

DOI: 10.1257/aer.97.5.1639


This paper presents a theory of establishment size dynamics based on the accumulation of industry-specific human capital that simultaneously rationalizes the economy- wide facts on establishment growth rates, exit rates, and size distributions. The theory predicts that establishment growth and net exit rates should decline faster with size, and that the establishment size distribution should have thinner tails, in sectors that use specific human capital less intensively. We establish that there is substantial cross-sector heterogeneity in US establishment size dynamics and distributions, which is well explained by relative factor intensities. (JEL L11 , L16, L25).

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Rossi-Hansberg, Esteban (Princeton University)
Wright, Mark L. J. (University of California, Los Angeles)

JEL Classifications

L11: Production, Pricing, and Market Structure; Size Distribution of Firms
L16: Industrial Organization and Macroeconomic Industrial Structure; Industrial Price Indices
L25: Firm Performance: Size, Diversification, and Scope

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