Technology, economies of scale and average size of industrial plants: Some further cross-country evidence

Sargant Florence pointed out long ago that broad technological factors seemed to underlie inter-industry differences in the typical size of plants. Much attention has been paid in several other recent studies to factors affecting average size of plants in industries and its variations among countries and over time. Their findings establish the important point that what lies at the heart of the matter is the different degrees to which countries are able to realize economies of scale in production. While the importance of technological economies in the shaping of the industry's scale curve is well recognised in theoretical literature, the empirical studies have, however, paid little explicit attention to this factor as a determinant of plant size differences across countries. This paper examines the hypothesis that average plant size of industries is an increasing function of the level of capital intensity in production. In testing this hypothesis, the capital intensity pattern and average plant size of industries are compared for countries at different levels of economic development. This approach has two advantages. First, the observed differences in the level of capital intensity are likely to be most pronounced when countries at different levels of technological development are considered. Secondly, it throws some light on the question of the relationship of economic development to the size of industrial plant, an issue of considerable interest in itself. This paper differs in two further respects from other studies. First, the concept of average size (measured by employment) used here takes account of the entire distribution of plants, including the small-sized plants. Use is made of the lognormal distribution model in estimating the average size. Secondly, the scope of the present sample is also broader than has been the case so far average plant sizes by industries are compared for 23 nations, including many less developed.

Growth patterns of small scale plants in manufacturing industries: A cross-country analysis

An important issue that confronts small sector development policy in manufacturing is the question of whether small-scale plants are in the long-run viable or must they disappear in the development process. This question is important because answers to it may indicate whether small-scale plants are worthwhile developing in the first place and, if they are, which specific industries appear most appropriate for the purpose. Clearly, central to the issues raised are questions of economies of scale and production function in manufacturing. In planning investments the method of mathematical programming has proved to be quite useful in coping with them. In this paper an attempt is made to apply the patterns approach to development as a method of dealing with the question raised in a general way. Briefly, this approach involves estimating by means-of econometric methods the observed long-term quantitative relationship between a sector's relative importance in the economy and a set of variables systematically affecting the sector, in order to be able to indicate its possible development path over time. While the major concern of the patterns approach to development to date has been with structural composition of industries, this paper looks at intercountry differences in the size structure of plants within individual industries. The principal concern of this paper is with the scale effects of economic development and market size on small-scale plants. Assume that at any point of time the same choices of techniques are open to all producers in a given industry in all countries and that these choices are mapped by a production function which is linearly homogeneous. Furthermore assume, to begin with, that the relative factor prices between labour and capital (the two primary factors of production) are the same for all producers in all countries. Under these simplifying assumptions, one sense in which the size of plant in a given industry can vary from country to country is when the size of market is different from one country to another. All other things being equal, the size of plant and that of the market will be positively associated, with one another.