Testing Gribat´s Law Across Regions. Evidence from Spain.



Introduction.

The relevance of the role played by firms of different size, and specially for small
firms, in job creation, has developped an extensive international literature, above all
after Birch’statement that “SMEs provide the highest share of economic employment”1.
One of the usual ways of testing if SMEs experience a higher increase in employment is
to test Gibrat’s law of “proportionate growth”, which states that “the probability of a
given proportionate change in size during a specified period is the same for all firms in
a given industry regardless of their size at the beginning of the period”. Many authors
have tested this law, and interesting surveys on this matter are found in Wagner, 1992;
Geroski, 1995; Sutton, 1997; or Caves, 1998, among others.

The studies testing Gibrat ´s law have incorporated different variables, adding relevant
information on the characteristics associated with employment growth, such as the
innovating activity, under the assumption that innovators experience a higher increase in
employment (Licht and Nerlinger, 1998; Storey and Tether, 1998; Almus and Nerlinger,
1999 and 2000; or Freel, 2000); the
age of the firm testing if the youngest grow bigger
(Reid, 1995; Harhoff et al, 1998, Heshmati, 2000, in an explicit way, or Almus and
Nerlinger, 2000 and Audretsch et al, 1999 in an implicit one);
industrial technological
development
, under the hypothesis that bigger growth occurs in more technologically
developed industries (Almus and Nerlinger, 1999 and 2000, Harhoff et al, 1990,
Audretsch, 1995, Audretsch et al, 1999, or Freel, 2000); and
legal liability (Harhoff et
al, 1998 or Almus y Nerlinger, 1999), testing if firms with owner’s limited legal liability
create more jobs. All those variables have been included for the Spanish case in
Calvo,2002.

Nevertheless, any of those studies mentioned before have not included geographical
aspects, a variable that could be expected to have some relevance in this type of
analysis. In fact, the first study that takes into account geographical variables for testing
Gibrafs law is Wiseen and Huisman, 2003, who differentiate between urban and not
urban areas in five regions in the Netherlands. The reason to justify the inclusion of
those characteristics is related to
agglomeration effects.

1 Birch, 1979.



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