Firm growth dynamics under different knowledge regimes: The case of the pharmaceutical industry

The paper studies the dynamics of firm growth and firm size distributions in the pharmaceutical industry from 1950 to 2003 and in the biotechnology industry from the early 1980's to 2003. Growth dynamics are studied in the context of how the size composition of firms changes, how innovation patterns (patents) change, as well as locational decisions of firms (NJ vs. California). Results suggest that Gibrat's law (random growth) does not hold for the majority of the period under observation, and that the growth advantage of small pharma firms increases after the 1980's as the process of innovation becomes more guided and scale intensive and as small firm innovation becomes more persistent. Furthermore, at the end of the 1970's a bimodal firm size distribution emerges in the pharmaceutical industry precisely when a new division of labor between large and small firms sets in. We find that firms located in California are smaller, faster growing and more innovative than those in NJ.