Review of Industrial Organization 17: 229–248, 2000.
© 2000 Kluwer Academic Publishers. Printed in the Netherlands.
Theories of Firms’ Growth and the Generation of
P. E. HART
Department of Economics, Faculty of Letters & Social Sciences, PO Box 218, Whiteknights,
Reading, RG6 6AA, U.K.
Abstract. This paper relates recent empirical research on the growth of U.K. companies to the main
economic theories of ﬁrms’ growth and to empirical results for the U.S.A. Smaller and younger ﬁrms
have been growing more quickly than larger and older ﬁrms, thus generating proportionately more
new jobs. These results do not support the various theories of static and dynamic economies of scale.
Serial correlation of growth is very low, so success does not persist. The systematic tendency for
small and younger ﬁrms to grow more quickly is the main reason why ﬁrm growth is not entirely
Key words: Age, ﬁrms’ growth, jobs, size.
There is an enormous literature on the theories of the growth of ﬁrms. In addition to
summaries in standard textbooks (e.g., Scherer and Ross, 1990), there are surveys
such as that by Trau (1996) which has some 160 references and many more could
have been cited. There are also a large number of empirical studies of ﬁrms’ growth
and an extensive literature on the relationship between the size of a ﬁrm and its
generation of jobs, or employment growth. It is true that employment is merely
one measure of size, but all size measures are so highly correlated across ﬁrms that
this limitation is not important. The present paper is concerned with companies,
a subset of ﬁrms, and relates the empirical ﬁndings of Hart and Oulton
1996a, b, 1997, 1998a, b, 1999) for the U.K. to those of other researchers and to
the theories of ﬁrms’ growth.
It uses the Galtonian regression model summarised in Section II. The empirical
results are related to the main theories of ﬁrms’ growth in Section III following
Trau (1996), and to other empirical studies for the U.K. and U.S.A. in Section IV.
The conclusions are given in Section V.
I am indebted to an anonymous referee for most helpful comments on an earlier version of this
Denoted by HO.