On the Growth of Micro and Small Firms

The relationships between firms' size, age and their growth rate are examined for a large sample of micro and small firms in Sweden. These firms have employees numbering in the range of 1-100 and are operating in a geographically concentrated area. Micro and small firms dominate the industrial structure and thus their growth patterns are crucial to the economic growth of the region. The period of study is of particular interest because it allows us to evaluate the effects of various regional development policy programs on the growth and formation of firms. The data is an unbalanced panel covering the period 1993-1998. We allow for the exit and entry of firms. Growth rate is defined in terms of the number of employees, sales and assets. In the estimation of growth rate we control for various factors characterizing the sample firms, their capital structure, performances, human capital, and local labor market conditions. Our results show that the relationship between growth, size and the age of firms is very sensitive with respect to the methods of estimation, functional forms and growth and size definitions.