Testing the validity of Gibrat’s law for Slovenian farms: cross-sectional dependence and unit root tests

Štefan Bojnec,Imre Fertő

doi:10.1080/1331677x.2020.1722722

Abstract

This paper studies the validity of Gibrat’s law for the growth of Slovenian farms between 2007 and 2015 using Farm Accountancy Data Network datasets. Cross-sectional dependence test and four different groups of panel unit root tests are applied to study the relationship between farm size and the farm size growth. It revealed evidence of cross-sectional dependence in farm sizes. Both input (land and labour) and output (economic) sizes of variables as proxy for the measures of farm size are applied. The results suggest that Gibrat’s law is valid for Slovenian farms independently from the measures of farm size and types of panel unit root tests. Slovenian smaller farms are not growing faster than larger ones and thus all farm sizes tend to contribute to an increase in average farm size in generally relatively small- to medium-size farm structures.

Highlights

Since the mid of the twentieth century, the number of farms has declined sharply in developed countries (Lowder, Skoet, & Raney, 2016)
During the last three decades, similar phenomena was observed in Central and Eastern European (CEE) countries with transition from a centrally planned to a market economy (Eurostat, 2019b)
In order to check it empirically in the database used, before carrying out a panel unit root test, firstly we investigated the potential for cross-sectional dependence (CD) in farm sizes, applying the Pesaran (2004) CD test

Summary

Introduction

Since the mid of the twentieth century, the number of farms has declined sharply in developed countries (Lowder, Skoet, & Raney, 2016). Special attention is given to investigating the relationship between farm size and the farm size growth. This idea in the literature is known as Gibrat’s law or the law of proportionate effect, which was developed by Gibrat (1931) for French manufacturing firms and concluded that firm growth is a random effect, Š. The existing theories and applied research of the association between farm size and the farm size growth give mixed results by countries and over time (Akimowicz, Magrini, Ridier, Bergez, & Requier-Desjardins, 2013; Bakucs, Bojnec, Ferto, & Latruffe, 2013; Brenes-Mun~oz, Lakner, & Bru€mmer, 2016). The objective of the paper is to test the validity of Gibrat’s law for Slovenian farms between 2007 and 2015 using Farm Accountancy Data Network (FADN) datasets

Objectives

Methods

Results

Conclusion