Abstract
This article focuses on the existence of power laws in the firm-size distribution in Poland. Specifically, we empirically test whether the size distribution of companies in Poland has the characteristics of Zipf ’s law, a special case of power law observed in many different contexts in empirical economic literature. Our analysis uses 2019 data on the 2,000 largest companies in Poland as ranked by the Rzeczpospolita daily newspaper in its “Lista 2000” (Top 2,000 List). We reviewed theoretical mechanisms generating power laws and used several estimators of the power-law exponent in our empirical analysis. Our results confirm statistically significant deviations from Zipf ’s law in the firm-size distribution in Poland. We found evidence that the power law cannot satisfactorily approximate the sales-based distribution of firms.
Highlights
The aim of the article is to investigate the size distribution of Polish companies
The granular economy has an interesting feature whereby large companies may dominate in a specific sense, which in this case means that idiosyncratic shocks affecting them on a micro level may be translated into macroeconomic conditions
Since the estimation of the power-law exponent is sensitive to the extent of concentration of the largest companies only, it is possible that the logarithmic firm-size distribution in Poland is characterized by non-linearity and that the existing studies err by missing that point
Summary
The aim of the article is to investigate the size distribution of Polish companies. We will test a hypothesis that Polish companies are subject to a (weak) power-law distribution. The power law indicates a firm-size distribution with so-called fat tails, which means that, compared to the traditionally assumed normal distribution, the economy has a relatively strong representation of large companies (in terms of sales or employment). Gabaix refers to such a structure as the granular economy. The granular economy has an interesting feature whereby large companies may dominate in a specific sense, which in this case means that idiosyncratic shocks affecting them on a micro level may be translated into macroeconomic conditions. Were firm size distributed normally, we would expect individual shocks to cancel out, micro shocks would be irrelevant to the economy on a macro level
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