Reference : Factor substitution, average firm size and economic growth
Scientific journals : Article
Business & economic sciences : Multidisciplinary, general & others
http://hdl.handle.net/10993/27873
Factor substitution, average firm size and economic growth
English
Aquilina, M. [Dipartimento di Economia, Università degli Studi di Roma Tre, Via Ostiense 139, 00154, Rome, Italy]
Klump, Rainer mailto [University of Luxembourg > Rectorate > Rectorate]
Pietrobelli, C. [CREI, Department of Law and Economics, Università degli Studi di Roma Tre, Via Ostiense 139, 00154, Rome, Italy]
2006
Small Business Economics
26
3
203-214
Yes
0921898X
[en] Average firm size ; CES function ; General equilibrium models ; Neoclassical growth models
[en] This paper extends the Lucas (1978, The Bell Journal of Economics 9(2), 508-523) analysis of firm size by taking into account a normalised aggregate CES production function. In a general equilibrium framework it is proved that there is an inverse relation between the elasticity of substitution and average firm size. If interpreted together with the fact that richer countries are characterised by a higher elasticity of substitution, this result can explain why the recent literature finds a positive association between the importance of SMEs in an economy and its stage of development, but seems to fail in finding causality between the two. Both have a common origin: a high value of the elasticity of substitution. This paper also provides a first empirical test of the theory proposed using cross-country data from both developed and developing countries. © Springer 2006.
http://hdl.handle.net/10993/27873
10.1007/s11187-005-4715-4

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