Testing the validity of Gibrat's law for Slovenian farms: cross-sectional dependence and unit root tests

Abstract

This paper studies the validity of Gibrat's law for the growth of Slovenian farms between 2007 and 2015 using Farm Accountancy Data Network datasets. Cross-sectional dependence test and four different groups of panel unit root tests are applied to study the relationship between farm size and the farm size growth. It revealed evidence of cross-sectional dependence in farm sizes. Both input (land and labour) and output (economic) sizes of variables as proxy for the measures of farm size are applied. The results suggest that Gibrat's law is valid for Slovenian farms independently from the measures of farm size and types of panel unit root tests. Slovenian smaller farms are not growing faster than larger ones and thus all farm sizes tend to contribute to an increase in average farm size in generally relatively small- to medium-size farm structures.