Due to its huge relevance, the relationship between firm size, firm growth and firm job creation is heavily debated in the industrial organization literature. A core theorem in this context has been Gibrat’s law suggesting that the proportional rate of growth of a firm is independent of its absolute size (Gibrat, 1931). However, the existing studies (mostly for developed countries) are rejecting Gibrat’s law by finding that smaller and younger firms grow more than larger and older ones.
In a new Discussion Paper of the Global Labor Organization (GLO), Hassan Arouri, Adel Ben Youssef, Francesco Quatraro and Marco Vivarelli show that this result is also found in the development context using data for Tunisia. The implication again is that small and young companies drive job creation, suggesting priority for those firms for receiving public support.
Hassan Arouri is associated with the National Institute of Statistics, Tunisia.
Adel Ben Youssef is associated with the University of Nice Sophia, Antipolis and GREDEG-CNRS, France.
Francesco Quatraro is associated with the University of Torino and Collegio Carlo Alberto, Torino, Italy.
GLO Fellow Marco Vivarelli is associated with the Universita’ Cattolica del Sacro Cuore, Milano, Italy.
Hassan Arouri, Adel Ben Youssef, Francesco Quatraro & Marco Vivarelli, Growth Dynamics of Young Small Firms: Evidence from Tunisia, GLO Discussion Paper No. 197. FREE DOWNLOAD: Download PDF
The aim of this paper is to investigate the growth dynamics of young small firms (in contrast with larger and older incumbents) in a developing country context, using a unique and comprehensive dataset of non-agricultural Tunisian companies. Our results suggest that significant differences between young and mature firms can be found as far as the drivers of their growth are concerned. The key finding being that -while consistently with the extant literature Gibrat’s law is overall rejected -the negative impact of the initial size is significantly larger for young than mature firms. This result has interesting policy implications: since smaller young firms are particularly conducive to employment generation, they can be considered good candidate for targeted accompanying policies addressed to sustain their post-entry growth.
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