Testing Gibrat’s Law: Empirical Evidence from a Panel of Portuguese Manufacturing Firms

The purpose of this paper is to use Dynamic Panel Data (DPD) models with serial correlation in the error term to see if Gibrat’s law holds and to analyse the empirical determinants of firm growth. This paper makes significant contributions to the empirical literature on the dynamics of firm growth, since it updates the work carried out by previous researchers in this field using micro panel data, dynamic firm growth models with serial correlation in the error term, panel unit root tests and GMM‐system estimator. To conduct this study we used an unbalanced panel of Portuguese manufacturing firms over the period from 1990 to 2001. The main implication of our findings is that firm growth is not quite random since there are some determinants which exert influence on firm growth.