Agglommeration effects support Gibrat’s law rejection in urban areas, where small firms
will grow faster and, at the same time, the law’s fulfillment in not urban areas, at least
for large firms. The reasons argued by the authors mentioned are related to
technological innovation and R&D activities in small firms; the presence of new
products in or around the larger urban centres produced by small firms; the existence of
higher incomes and consumer demand directed towards specializad products in urban
areas, where small firms are concentrated; a higher firm turnover for young and small
firms in urban regions; and congestions and limited availability of space, creating
barriers for larger firms to grow2.
The present study test Gibrat’s law using Spanish data taking into account regional
differences. The data come from the Firms Strategic Behaviour Survey for the period
1990-2001. A sample of 1073 firms is used: 751 of them survive for the whole period,
and, consequently, 322 disappear at some time over the 12 year period. At the same
time, four different regions are considered, depending on the size of the Spanish
provinces included in each group. A typical Gibrat’s equation is estimated, where the
employment of the last period depends on the employment of the first period and the
rest of variables (innovation, age, legal liability, and technological development of the
sector). Because of sample attrition, we use the procedure proposed by Heckman, 1979,
and estimate by maximum likelihood methods the model, including a probit survival
equation.
The structure of the study is as follows: the first section presents the data; the second
section defines the model used; the third section shows the estimated results; finally, the
last section develops the main conclusions.
The data.
The data used in this article come from the Firms Strategic Behaviour Survey (ESEE).
This is a survey of Spanish manufacturing firms that began in 1990 and is conducted
2 See Wiseen and Huisman, 2003 for a complete survey on those effects.