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

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  • Nguyen, Sang V
  • Lee, Seong-Hoon

Abstract

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. Copyright 2002 by Kluwer Academic Publishers

Suggested Citation

  • Nguyen, Sang V & Lee, Seong-Hoon, 2002. "Returns to Scale in Small and Large U.S. Manufacturing Establishments: Further Evidence," Small Business Economics, Springer, vol. 19(1), pages 41-50, August.
  • Handle: RePEc:kap:sbusec:v:19:y:2002:i:1:p:41-50
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    Cited by:

    1. Eeckhout, Jan & Jovanovic, Boyan, 2012. "Occupational choice and development," Journal of Economic Theory, Elsevier, vol. 147(2), pages 657-683.
    2. Sadorsky, Perry, 2008. "Assessing the impact of oil prices on firms of different sizes: Its tough being in the middle," Energy Policy, Elsevier, vol. 36(10), pages 3854-3861, October.

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