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Villari, B. C., Subramanian, B., Kumar, P., & Hota, P. K. (2021).
Do Firm Growth Models Work in Service Industries in
Developing Economies? An Investigation of the Relationship
Between Firms’ Growth, Size and Age. Journal of
Interdisciplinary Economics,33(2), 215-225.
Growth models such as Gibrat’s law and Jovanovic’s theory that
examine the relationship between the firms’ growth, age and size
have either been tested on data from developed economies or
from the manufacturing sectors in developing economies. This
study checks the suitability of these models in service sectors in
developing economies as service sectors have distinct
characteristics and developing economies such as India are
heavily dependent on this sector. The current study considers
three major service sectors contributing to India’s economy
vis-à-vis financial services, information technology and real
estate for the period 2002–2005. We observed that during
2002–2005, India’s economy was stable without wide fluctuations
in economic performance, such as gross domestic product,
unemployment or inflation. These sectors not only had a
significant impact on economic growth but also had
comprehensive microeconomic data. Our results negate both
Gibrat’s law and Jovanovic’s theory. We argue that service sectors
which are knowledge-intensive will experience different growth
patterns compared to manufacturing sectors. We find a definite
and significant relationship between firms’ growth and their size
and age. Also, we find concluding evidence that younger firms up
to 10 years of age struggle a lot more than older firms in the Indian
service sector.
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