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Productivity and firm size in India

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  • Prabal De
  • Priya Nagaraj

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

Suggested Citation

  • Prabal De & Priya Nagaraj, 2014. "Productivity and firm size in India," Small Business Economics, Springer, vol. 42(4), pages 891-907, April.
    • Handle: RePEc:kap:sbusec:v:42:y:2014:i:4:p:891-907
    DOI: 10.1007/s11187-013-9504-x
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    More about this item

    Keywords

    Small firms; Total factor productivity; Manufacturing sector; India; L25; L11; L60; L26;
    All these keywords.

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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