Rich and poor countries differ in the size distribution of business firms. In this project, I document that the right tail of the firm size distribution systematically grows thicker with economic development, both within countries over time and across countries. I develop a simple idea flow growth model to rationalise this fact. In the model, the firm size distribution has a thickening right tail along the growth path and converges to Zipf’s distribution, consistent with the well-known Zipf’s law. The model also implies that policies favouring large firms can improve welfare due to the externality associated with idea search.
STEG Project Policy Brief
• Research Theme 1: Firms, Frictions and Spillovers, and Industrial Policy,
Cross-Cutting Issue 3: Inequality and Inclusion
Economic Development and the Right Tail of the Firm Size Distribution
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