Let us remember that the shrinking of Esteban is actually the result of Ferula's curse, but also, you are right in suggesting that his reduced stature is symbolic of something else. Let us remember that from our first introduction to Esteban in the novel, he is presented as a cruel, violent and very ambitious character, as is shown by the way that he beats women and takes lovers. He is successfull in achieving money and power, growing in stature. However, the novel makes clear that this success is only limited to his public life, and in fact his private life is definitely not a success. We are told that his relationships with his children only became worse with time and after his wife's death, he is left alone with only two friends to try and make him happy. We can therefore see that the physical shrinking that Esteban endures is actually a symbol of the way that, as he grows older, he "shrinks" in terms of his importance in society.
The shrinking can perhaps also symbolise the way that Esteban mellows with age and becomes very tolerant and understanding of things that he would never have been tolerant of in his youth. His relationship with Alba, his granddaughter, is a prime example of this, as he agrees to her marriage to a boy of low public position.