Investigating the impact of small versus large firms on economic performance of countries and industries
25 February 2015
Following earlier work by Audretsch et al. (2002), we assume that an optimal size-class structure
exists, in terms of achieving maximal economic growth rates. Such an optimal structure is likely to
exist as economies need a balance between the core competences of large firms (such as exploitation
of economies of scale) and those of smaller firms (such as flexibility and exploration of new ideas).
Accordingly, changes in size-class structure (i.e., changes in the relative shares in economic activity
accounted for by micro, small, medium-sized and large firms) may affect macro-economic growth.
Using a unique data base of the EU-27 countries for the period 2002-2008 for five broad sectors of
economic activity and four size-classes, we find empirical support which suggests that, on average for
these countries over this period, the share of micro and large firms may have been ‘above optimum’
(particularly in lower income EU countries) whereas the share of medium-sized firms may have been
‘below optimum’ (particularly in higher income EU countries). This evidence suggests that the
transition from a ‘managed’ to an ‘entrepreneurial’ economy (Audretsch and Thurik, 2001) has not
been completed yet in all countries of the EU-27.
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