Gibrat’s law and Jovanovic’s learning theory

Abstract

This article tests the validity of Gibrat’s Law and Jovanovic’s learning theory for growing small and medium-sized firms (SMEs) in post-conflict economy of Kosovo. Despite evolving body of evidence suggesting that Gibrat’s Law does not hold, there is a lack of empirical evidence from transitional and post-conflict economies. This study provides econometric analysis of the relationship of age, size and growth of SMEs. The article is based on pooled SME surveys conducted by Riinvest Institute (2004- 2006). Econometric findings show that Gibrat’s Law does not hold in all model specifications while support the conventional Jovanovic’s learning theory based on growth-size age model suggesting important policy implications for promotion of small firms in Kosovo.