DOI 10.1007/s11151-005-5053-z Review of Industrial Organization (2005) 27:303–328 © Springer 2005 Technology and the Size Distribution of Firms: Evidence from Dutch Manufacturing ORIETTA MARSILI Rotterdam School of Management, Erasmus University, Burg. Oudlaan 50, 3000 DR Rotterdam, The Netherlands, E-mail: omarsili@rsm.nl Abstract. Empirical studies have shown that the size distribution of firms can be described as a Pareto distribution. However, these studies have focused on large firms and aggregate statistics. Little attention has been placed on the role of technology in shaping firm size distributions. Using a comprehensive dataset of manufacturing firms and the Community Innovation Survey from the Netherlands, the paper investigates the relationship between firm size and technology. It shows that technological factors shape the distribution of firm size, suggesting that the Pareto law is not an invariant property and that technology can constrain the “self-organising” character of industrial economies. Key words: firm size, Gibrat’s law, innovation, Pareto distribution. JEL Classifications: L11, L60, O33. I. Introduction The Pareto law is a well-known property of the size distribution of firms. It says that the frequency of firms in a population above a certain size is inversely proportional to the firm size. In logarithms, this relationship can be represented graphically as a straight line. A number of studies have tested empirically this hypothesis and for- mulated models able to generate Pareto-like distributions (Steindl, 1965; Ijiri and Simon, 1977). These studies have been extremely influential in industrial economics and elsewhere. For example, there has been a renewed interest in the Pareto distribution across many different disciplines. This interest focuses on the properties of the Pareto distribution, as a power law able to describe the organisation of different scientific and social sys- tems (Krugman, 1996; Bak, 1997). If distributed according to a power law, the structure of the industrial system would depend only on the interac- tion between its components and not on external factors or the individual behaviour. In addition, a similar structural form would be observed at different levels of aggregation, such as countries and sectors. Finally, this