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

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  • Sang V Nguyen
  • Arnold P Reznek

Abstract

The objective of this study is to assess the possibility of differences in the production technologies between large and small establishments in five selected 4-digit SIC manufacturing industries. We particularly focus on estimating returns to scale and then make interferences regarding the efficiency of small businesses relative to large businesses. Using cross-section data for two census years, 1977 and 1982, we estimate a transcendental logarithmic (translog) production model that provides direct estimates of economies of scale parameters for both small and large establishments. Our primary findings are: (i) there are significant differences in the production technologies between small and large establishments; and (ii) based on the scale parameter estimates, small establishments appear to be as efficient as large establishments under normal economic conditions, suggesting that large size is not a necessary condition for efficient production. However, small establishments seem to be unable to maintain constant returns to scale production during economic recession such as that in 1982.

Suggested Citation

  • Sang V Nguyen & Arnold P Reznek, 1990. "Returns to Scale in Small and Large U.S. Manufacturing Establishments," Working Papers 90-11, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:90-11
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    References listed on IDEAS

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    8. Sheila A Martin & Richard Mchugh & S R Johnson, 1991. "The Influence Of Location On Productivity: Manufacturing Technology In Rural And Urban Areas," Working Papers 91-10, Center for Economic Studies, U.S. Census Bureau.
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