A Closer Look at Serial Growth Rate Correlation

Serial correlation in annual growth rates carries a lot of information on growth processes – it allows us directly to observe firm performance as well as to test theories. Using a seven-year balanced panel of 10,000 French manufacturing firms, we observe that small firms typically are subject to negative correlation of annual growth rates, whereas larger firms display positive correlation. Furthermore, we find that those small firms that experience extreme positive or negative growth in any one year are unlikely to repeat this performance in the following year. Thanks go to Carlo Bianchi, Giulio Bottazzi, Domenico Delli Gatti, Giovanni Dosi, Bernard Paulré, Rekha Rao and participants at the LEM conference on ‘Reappraising Economics as an Empirically Disciplined Science’ in Volterra in September 2006 for helpful comments. I am also indebted to Larry White (the editor) and two anonymous referees for many insightful remarks and suggestions. The usual disclaimer applies.