Gibrat's Law: Are the Services Different?

Several noted surveys on intra-industry dynamics have reached the conclusion from a large body of evidence that Gibrat's Law does not hold. However, almost all of these studies have been based on manufacturing or large scale services such as banking and insurance industries. There are compelling reasons to doubt whether these findings hold for small scale services such as the hospitality industries. In this paper we examine whether the basic tenet underlying Gibrat's Law– that growth rates are independent of firm size – can be rejected for the services as it has been for manufacturing. Based on a large sample of Dutch firms in the hospitality industries the evidence suggests that in most cases growth rates are independent of firm size. Validation of Gibrat's Law in some sub-sectors of the small scale services suggests that the dynamics of industrial organization for services may not simply mirror that for manufacturing. The present paper includes a survey of nearly 60 empirical studies on firm growth rates.