Universal fluctuations in growth dynamics of economic systems

TL;DR

This paper demonstrates that the statistical power-law properties of firm growth are persistent and universal across different sectors and time periods, indicating fundamental underlying dynamics in economic systems similar to physical critical phenomena.

Contribution

It extends previous findings by showing the universality and robustness of growth fluctuations across sectors and over time in economic systems.

Findings

Growth fluctuations follow power laws across sectors and time periods.

Scaling exponents are consistent over different industries and years.

Growth rate fluctuations in new industries self-organize into power laws quickly.

Abstract

The growth of business firms is an example of a system of complex interacting units that resembles complex interacting systems in nature such as earthquakes. Remarkably, work in econophysics has provided evidence that the statistical properties of the growth of business firms follow the same sorts of power laws that characterize physical systems near their critical points. Given how economies change over time, whether these statistical properties are persistent, robust, and universal like those of physical systems remains an open question. Here, we show that the scaling properties of firm growth previously demonstrated for publicly-traded U.S. manufacturing firms from 1974 to 1993 apply to the same sorts of firms from 1993 to 2015, to firms in other broad sectors (such as materials), and to firms in new sectors (such as Internet services). We measure virtually the same scaling exponent for manufacturing for the 1993 to 2015 period as for the 1974 to 1993 period and virtually the same scaling exponent for other sectors as for manufacturing. Furthermore, we show that fluctuations of the growth rate for new industries self-organize into a power law over relatively short time scales.