The Validity of Gibrat's Law: Evidence from the Service Sector in Jordan

摘要

Gibrat's Law or law of proportionate effect (1931) suggested that the growth of the firm is independent of the firm size. This law has been widely studied over the last 40 years until the present time. A lot of studies on Gibrat's Law have been applied in developed countries;; however, there is a lack of research on Gibrat's Law in the developing countries. The purpose of this study is to test Gibrat's Law for the service sector in Jordan by using the transition matrix over the period of 2009-2011. Furthermore, the data will be provided by the Department of Statistic, Jordan, using sales as a measurement of firm size.The study rejects Gibrat's Law for the service sector. This means that small firms grow faster than large firm. Consequently, small firms are an important consideration for the policy makers, firm's shareholders and international organizations to create employment in Jordan to solve the problems of unemployment.