Small & Young Companies are Driving Job Creation

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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