Paper Reveals that Firm Size and Growth is Mediated by the Industry Conditions

 André Filipe Abreu RegateiroAndré Regateiro, a dual degree Ph.D. student in the Technological Change and Entrepreneurship (TCE) program, is studying the connection between firm size and job creation. During his studies he discovered that “the relationship between firm size and firm growth is mediated by the industry conditions,” because “in declining or low-growth industries smaller firms grow faster than larger ones but that relationship reverses for faster growing industries.”

Policy makers typically focus on Small and Medium Enterprises (SME) as the engines of economic growth and job creation. Examples of this can be seen in practically every job related to legislation of most countries. Regateiro’s work intends to “put this reasoning to the test.”

Regateiro is working with a detailed Portuguese database, which covers the entire Portuguese economy from 1986 to 2008 and provides details on both firms and workers. Through this database, he found that “the relationship between firm size and firm growth is not such a simple story as saying that small firms grow faster.” In particular, Regateiro found that the “relationship between firm size and firm growth is mediated by the industry conditions: In declining or low-growth industries, smaller firms grow faster than larger ones but that relationship reverses for faster growing industries.”

Regateiro says “this effect seems to be caused by a greater ability of larger firms to adapt to the economic climate. Small firms are always job creators while large firms switch from job destroyers to job creators as industry conditions improve.” One of the main impacts of the research that Regateiro is carrying out is that it could “force the government to rethink on how we support job creation.”

“We used to think that small firms grew faster, now we know that it just happen in low growth industries,” says Regateiro. “Now we know that large firms are also very important creators of new jobs.”

André Regateiro is co-advised by Rui Baptista of Instituto Superior Técnico, Universidade Técnica de Lisboa (IST/UTL); Lee Branstetter and Serguey Branguinsky, also of Carnegie Mellon University. He says that the amount of information on any academic subject out there is staggering. Therefore, “the advisors role is to direct you, as quickly as possible, to the knowledge frontier, showing you how you can make your own contribution,” says Regateiro adding that “my advisors have been great in that role.” Regateiro also emphasized the different background of his advisors, which help him to get “different perspectives on the subject.”

In the future, Regateiro plans on getting a job at a University “that has a strong focus on research.”

Full article available at http://www.heinz.cmu.edu/research/398full.pdf

November 2010