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Cost Flexibility and Firm Size: An Application to Spanish Manufacturing

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  • Nuria Villalba Villalba
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    Abstract

    This paper examines the relationship between flexibility and the size of establishments for Spanish manufacturing industry. This relationship is examined using the Encuesta Industrial, an annual survey which provides manufacturing sectorial information for six size categories over the period 1980-92. The theoretical framework is that proposed by Mills and Schumann (1985), finding in the evidence related to technological flexibility and demand fluctuations a greater capacity of small firms to adapt to environmental changes, allowing them, in addition, to resist competition based on costs, such as that stemming from scale economies. The results emerging from the estimations confirm that small establishments show greater production variability, employment variability and profit variability than large establishments. That is to say, small establishments are more flexible than large ones due to their greater capacity to absorb demand fluctuations.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal International Journal of the Economics of Business.

    Volume (Year): 13 (2006)
    Issue (Month): 3 ()
    Pages: 429-446

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    Handle: RePEc:taf:ijecbs:v:13:y:2006:i:3:p:429-446

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    Related research

    Keywords: Firm Flexibility; Technological Diversity; Demand Fluctuations;

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    1. Zimmermann, Klaus F., 1995. "Flexibility in the face of demand fluctuations: Employment, capacity utilization, and industry structure," International Journal of Industrial Organization, Elsevier, vol. 13(2), pages 179-193.
    2. Sheshinski, Eytan & Dreze, Jacques H, 1976. "Demand Fluctuations, Capacity Utilization, and Costs," American Economic Review, American Economic Association, vol. 66(5), pages 731-42, December.
    3. Taymaz, Erol, 1991. "Flexible Automation in the U.S. Engineering Industries," Working Paper Series 296, Research Institute of Industrial Economics.
    4. Mills, David E, 1984. "Demand Fluctuations and Endogenous Firm Flexibility," Journal of Industrial Economics, Wiley Blackwell, vol. 33(1), pages 55-71, September.
    5. Mills, David E & Schumann, Laurence, 1985. "Industry Structure with Fluctuating Demand," American Economic Review, American Economic Association, vol. 75(4), pages 758-67, September.
    6. Francisco Javier Velázquez Angona, 1993. "Economías de escala y tamaños óptimos en la industria española (1980-1986)," Investigaciones Economicas, Fundación SEPI, vol. 17(3), pages 507-525, September.
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