On the mean/variance relationship of the firm size distribution: Evidence and some theory

Firm-level data for a small sample of European countries are used to provide evidence of a positive linear relationship between the mean and the variance of firms’ size at a sectoral level, an empirical regularity known in mathematical biology and ecology as Taylor power law. We recur to computational experiments to show how this empirical fact can be fruitfully employed to discriminate amongst alternative theoretical explanations of firms’ growth.

► The Taylor power law is applied to populations of firms. ► Different populations at the country level are characterized by different empirical estimates of the Taylor power law slope. ► Simulations are used to discriminate amongst several alternative stochastic growth models as data-generating processes.