Power-Law Distributions in Economics: Empirical Evidence for an Emerging Economy, Kazakhstan

Abstract

Heterogeneity between workers, firms or regions is an aspect in macroeconomics that has been largely overlooked. Typically, a representative agent approach is followed, like the respresentative firm or worker in an economy. However, this approach potentially misses a lot of what may be important drivers and transmission mechanisms in the economy at large. In other words, it misses the underlying granularity of the economy. Rather than taking the average firm or worker or region, it is therefore important to study the entire distribution. This allows a better assessment of how firm-specific idiosyncratic shocks may affect the overall economy. This is particurlarly relevant given that recent work has demonstrated that many economic variables, such as firm size and city size, follow a power law (with respect to the number of employees). This paper first documents power laws in economics and then estimates power laws for firms and cities in Kazakhstan. \end{abstract}