Productivity and firm size in India

Prabal De () and Priya Nagaraj ()

Small Business Economics, 2014, vol. 42, issue 4, 907 pages

Abstract: Are smaller firms more productive? Intuitively, while small firms have the advantage of more flexible management and lower response time to market changes, larger firms have the advantages of economies of scale, political clout and better access to government credits, contracts and licenses, particularly in developing countries. Using a panel dataset from a commercially available database of financial statements of manufacturing firms in India, we find that firms in the lowest quintile of the asset distribution that invest in research and have better liquidity are most productive. The Indian manufacturing sector, characterized by both large scale public and private firms as well as numerous smaller firms, provides an ideal setting. Our findings are robust to alternative definitions of size, alternative estimation methods and alternative estimates of total factor productivity. Copyright Springer Science+Business Media New York 2014

Keywords: Small firms; Total factor productivity; Manufacturing sector; India; L25; L11; L60; L26 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1007/s11187-013-9504-x

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