Human capital and average firm size

This note embeds an O-ring production function of Kremer (1993) into the standard Lucas (1978) model of firm size distribution. We show that an increase in the stock of human capital can raise average firm size. Empirical evidence confirms this finding. These findings help explain the positive relat...

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Bibliographic Details
Published in:Economics letters 2021-07, Vol.204, p.109920, Article 109920
Main Authors: Bi, Qingmiao, Hang, Jing, Zhou, Mohan
Format: Article
Language:English
Subjects:
Average firm size
Averages
Human capital
O-ring production
Stocks
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Summary:This note embeds an O-ring production function of Kremer (1993) into the standard Lucas (1978) model of firm size distribution. We show that an increase in the stock of human capital can raise average firm size. Empirical evidence confirms this finding. These findings help explain the positive relationship between average firm size and development documented in the recent literature. •We study average firm size in a model marrying Kremer (1993) and Lucas (1978).•We show that an increase in worker human capital raises average firm size (AFS).•Cross-country data confirms the positive relationship between human capital and AFS.•The results help explain why AFS rises with development.
ISSN:0165-1765
1873-7374
DOI:10.1016/j.econlet.2021.109920