Firm size distribution and growth: An empirical investigation.

• Firm size and technological change are closely related. • The concentration of the market structure explains most disparities in cross-country productivity. • The shift from small to large size classes has a strong role for enhancing productivity in developed countries. • 71% of Germany and Turkey's productivity differential are explained by misallocation. This paper investigates the extent to which the distribution of firm sizes affects growth and productivity. The empirical analysis is underpinned by a multilevel database comprising information on manufacturing sectors of 35 countries disaggregated in five firm size classes. Three complementary strategies to assess the relationship are implemented. The first, a country-level counterfactual analysis, measures the hypothetical impact of a firm reallocation to reflect a benchmark market structure. It is followed by a decomposition exercise that illustrates the impact of both the structural and technological components on the annual productivity growth between 1991 and 2007. Finally, different econometric models are estimated to assess the statistical significance of changes in the firm size distribution on growth and the role of the concentration of the market structure in explaining the cross-country productivity discrepancies. The results suggest that the firm size is a key driver the development process. [ABSTRACT FROM AUTHOR]