THE GROWTH DYNAMICS OF GERMAN BUSINESS FIRMS

Abstract

We determine the distribution of size and growth rates of German business firms in 1987–1997. We find a log-normal size distribution. The distribution of growth rates has fat tails. It can be fitted to an exponential in a narrow central region and is dominated by finite-sample-size effects far in its wings. We study the dependence of the growth rate distribution on firm size: depending on procedures, we find almost no dependence when the center of the distribution is considered or, similar to previous work, a power-law when the wings are weighted more strongly. Correlations in the growth of different firms are essentially random. We determine the annual growth of the entire economy, and successfully correlate it with a standard economic indicator of business cycles in Germany. We emphasize possible problems related to the finite number of firms comprised in our database and its short extension in time.