Returns to Scale in Small and Large U.S. Manufacturing Establishments: Further Evidence

Nguyen and Reznek (1991) used plant-level data for five 4-digit SIC industries to estimate and compare the degrees of returns-to-scale for establishments of various size classes for the years 1977 and 1982. They found that the estimated scale elasticities of all plant sizes have values approximately...

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Bibliographic Details
Published in:Small business economics 2002-08, Vol.19 (1), p.41-50
Main Authors: Nguyen, Sang V., Lee, Seong-Hoon
Format: Article
Language:English
Subjects:
Business structures
Business studies
Censuses
Constant returns to scale
Datasets
Economic models
Economic theory
Economics
Economies of scale
Efficiency
Elasticity of demand
Energy
Enterprises
Estimates
Hypotheses
Industrial production
Manufacturing
Manufacturing industries
Production estimates
Production functions
Returns to scale
Small & medium sized enterprises-SME
Small and medium sized enterprises
Small business
Small businesses
Studies
U.S.A
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Summary:Nguyen and Reznek (1991) used plant-level data for five 4-digit SIC industries to estimate and compare the degrees of returns-to-scale for establishments of various size classes for the years 1977 and 1982. They found that the estimated scale elasticities of all plant sizes have values approximately equal to one. They, therefore, concluded that both small and large establishments under study are equally efficient in production. The purpose of the present study is to extend and improve upon Nguyen and Reznek's work by (1) extending the data set to cover the entire U.S. manufacturing sector, (2) improving the model by including energy as a separate input in production, and (3) relaxing the assumption of homogeneity and estimating an unrestricted (non-homogeneous, non-homothetic) production model. With the improved model and data, it is found that the estimated scale elasticities for all sizes of establishment are statistically insignificantly different from one. Thus, the result confirms and strengthens Nguyen and Reznek's finding that a large establishment size is not a necessary condition for efficient production.
ISSN:0921-898X
1573-0913
DOI:10.1023/A:1015714305990