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Factor substitution, average firm size and economic growth
Aquilina, M.; Klump, Rainer; Pietrobelli, C.
2006In Small Business Economics, 26 (3), p. 203-214
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Keywords :
Average firm size; CES function; General equilibrium models; Neoclassical growth models
Abstract :
[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.
Disciplines :
Business & economic sciences: Multidisciplinary, general & others
Identifiers :
eid=2-s2.0-33244495331
Author, co-author :
Aquilina, M.;  Dipartimento di Economia, Università degli Studi di Roma Tre, Via Ostiense 139, 00154, Rome, Italy
Klump, Rainer ;  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
External co-authors :
yes
Language :
English
Title :
Factor substitution, average firm size and economic growth
Publication date :
2006
Journal title :
Small Business Economics
ISSN :
0921-898X
Volume :
26
Issue :
3
Pages :
203-214
Peer reviewed :
Peer reviewed
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