IDEAS home Printed from https://ideas.repec.org/p/qld/uq2004/581.html
   My bibliography  Save this paper

Firm Size Distribution, Production Efficiency, and Returns to Scale: A Stochastic Frontier Approach

Author

Abstract

This paper empirically investigates the relationship between firm size, production efficiency, and returns to scale. Using a recently developed stochastic frontier approach and data from Vietnam, our analysis shows that across all of the sectors we consider, production efficiency is most variable among middle-sized firms, with these firms across all sectors tending to have the lowest production efficiency. While most firms across different sized groups show constant returns-to-scale technologies, our analysis using Spearman coefficients shows that there is a significant difference in technologies and this difference varies substantially across size groups in all sectors. Furthermore, we show that the least-efficient size also differs across sectors. Although our analysis is a snapshot of the Vietnamese manufacturing industry, the diverse production efficiencies in the middle-sized groups can be thought of as a risk that small-sized firms would face in expanding their business.

Suggested Citation

  • Hien Thu Pham & Shino Takayama, 2017. "Firm Size Distribution, Production Efficiency, and Returns to Scale: A Stochastic Frontier Approach," Discussion Papers Series 581, School of Economics, University of Queensland, Australia.
  • Handle: RePEc:qld:uq2004:581
    as

    Download full text from publisher

    File URL: https://economics.uq.edu.au/files/46245/581.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. James R. Tybout, 2000. "Manufacturing Firms in Developing Countries: How Well Do They Do, and Why?," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 11-44, March.
    2. O'Donnell, Christopher J. & Coelli, Timothy J., 2005. "A Bayesian approach to imposing curvature on distance functions," Journal of Econometrics, Elsevier, vol. 126(2), pages 493-523, June.
    3. Jan De Loecker, 2011. "Product Differentiation, Multiproduct Firms, and Estimating the Impact of Trade Liberalization on Productivity," Econometrica, Econometric Society, vol. 79(5), pages 1407-1451, September.
    4. W. Erwin Diewert & Takanobu Nakajima & Alice Nakamura & Emi Nakamura & Masao Nakamura, 2011. "Returns to scale: concept, estimation and analysis of Japan's turbulent 1964–88 economy," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 44(2), pages 451-485, May.
    5. Lisa Crosato & Sergio Destefanis & Piero Ganugi, 2009. "Firm Size Distribution and Returns to Scale. Non-Parametric Frontier Estimates from Italian Manufacturing," CSEF Working Papers 228, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    6. Klette, Tor Jakob & Griliches, Zvi, 1996. "The Inconsistency of Common Scale Estimators When Output Prices Are Unobserved and Endogenous," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(4), pages 343-361, July-Aug..
    7. M. Diaz & Rosario Sanchez, 2008. "Firm size and productivity in Spain: a stochastic frontier analysis," Small Business Economics, Springer, vol. 30(3), pages 315-323, March.
    8. Efthymios G. Tsionas, 2002. "Stochastic frontier models with random coefficients," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 17(2), pages 127-147.
    9. Ray,Subhash C., 2012. "Data Envelopment Analysis," Cambridge Books, Cambridge University Press, number 9781107405264, October.
    10. Bos, J.W.B. & Koetter, M. & Kolari, J.W. & Kool, C.J.M., 2009. "Effects of heterogeneity on bank efficiency scores," European Journal of Operational Research, Elsevier, vol. 195(1), pages 251-261, May.
    11. Jan Bentzen & Erik Madsen & Valdemar Smith, 2012. "Do firms’ growth rates depend on firm size?," Small Business Economics, Springer, vol. 39(4), pages 937-947, November.
    12. Luis Orea, 2002. "Parametric Decomposition of a Generalized Malmquist Productivity Index," Journal of Productivity Analysis, Springer, vol. 18(1), pages 5-22, July.
    13. Meeusen, Wim & van den Broeck, Julien, 1977. "Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 435-444, June.
    14. Liedholm, Carl & Mead, Donald C., 1987. "Small Scale Industries in Developing Countries: Empirical Evidence and Policy Implications," Food Security International Development Papers 54062, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    15. Wilson, Paul W., 2008. "FEAR: A software package for frontier efficiency analysis with R," Socio-Economic Planning Sciences, Elsevier, vol. 42(4), pages 247-254, December.
    16. Miller, Stephen M. & Noulas, Athanasios G., 1996. "The technical efficiency of large bank production," Journal of Banking & Finance, Elsevier, vol. 20(3), pages 495-509, April.
    17. Basu, Susanto & Fernald, John G, 1997. "Returns to Scale in U.S. Production: Estimates and Implications," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 249-283, April.
    18. Anh, Nguyen Thi Tue & Duc, Luu Minh & Chieu, Trinh Duc, 2014. "The evolution of Vietnamese industry," WIDER Working Paper Series 076, World Institute for Development Economic Research (UNU-WIDER).
    19. Danny Leung & Césaire Meh & Yaz Terajima, 2008. "Firm Size and Productivity," Staff Working Papers 08-45, Bank of Canada.
    20. Caves, Douglas W & Christensen, Laurits R & Diewert, W Erwin, 1982. "The Economic Theory of Index Numbers and the Measurement of Input, Output, and Productivity," Econometrica, Econometric Society, vol. 50(6), pages 1393-1414, November.
    21. Kalirajan, K.P. & Shand, R.T., 1994. "Modelling and Measuring Economic Efficiency under Risk," Indian Journal of Agricultural Economics, Indian Society of Agricultural Economics, vol. 49(4).
    22. Nguyen Thi Tue Anh & Luu Minh Duc & Trinh Duc Chieu, 2014. "The Evolution of Vietnamese Industry," WIDER Working Paper Series wp-2014-076, World Institute for Development Economic Research (UNU-WIDER).
    23. Feng, Guohua & Zhang, Xiaohui, 2014. "Returns to scale at large banks in the US: A random coefficient stochastic frontier approach," Journal of Banking & Finance, Elsevier, vol. 39(C), pages 135-145.
    24. Steel, William F & Webster, Leila M, 1992. "How Small Enterprises in Ghana Have Responded to Adjustment," The World Bank Economic Review, World Bank, vol. 6(3), pages 423-438, September.
    25. Banerjee, Abhijit V. & Duflo, Esther, 2005. "Growth Theory through the Lens of Development Economics," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 7, pages 473-552, Elsevier.
    26. Katayama, Hajime & Lu, Shihua & Tybout, James R., 2009. "Firm-level productivity studies: Illusions and a solution," International Journal of Industrial Organization, Elsevier, vol. 27(3), pages 403-413, May.
    27. Danny Leung & Césaire Meh & Yaz Terajima, 2008. "Productivity in Canada: Does Firm Size Matter?," Bank of Canada Review, Bank of Canada, vol. 2008(Autumn), pages 7-16.
    28. Hien Thu Pham & Shino Takayama, 2015. "Revisiting the Missing Middle: Production and Corruption," CEPA Working Papers Series WP022015, School of Economics, University of Queensland, Australia.
    29. Doraszelski, Ulrich, 2004. "Measuring returns to scale in nineteenth-century French industry," Explorations in Economic History, Elsevier, vol. 41(3), pages 256-281, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hien Thu Pham & Shino Takayama, 2017. "Revisiting the “Missing Middle”: Productivity Analysis," Discussion Papers Series 580, School of Economics, University of Queensland, Australia.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hien Thu Pham & Shino Takayama, 2015. "Revisiting the Missing Middle: Production and Corruption," CEPA Working Papers Series WP022015, School of Economics, University of Queensland, Australia.
    2. Hien Thu Pham & Shino Takayama, 2017. "Revisiting the “Missing Middle”: Productivity Analysis," Discussion Papers Series 580, School of Economics, University of Queensland, Australia.
    3. Hien Thu Pham & Nhan Buu Phan & Shino Takayama, 2020. "Productivity, Efficiency and Firm Size Distribution: Evidence from Vietnam," Discussion Papers Series 617, School of Economics, University of Queensland, Australia.
    4. Goyette, Jonathan & Gallipoli, Giovanni, 2015. "Distortions, efficiency and the size distribution of firms," Journal of Macroeconomics, Elsevier, vol. 45(C), pages 202-221.
    5. Marijn Verschelde & Michel Dumont & Glenn Rayp & Bruno Merlevede, 2016. "Semiparametric stochastic metafrontier efficiency of European manufacturing firms," Journal of Productivity Analysis, Springer, vol. 45(1), pages 53-69, February.
    6. Jonathan Goyette, 2012. "Optimal tax threshold: the consequences on efficiency of official vs. effective enforcement," Cahiers de recherche 12-07, Departement d'économique de l'École de gestion à l'Université de Sherbrooke.
    7. Guohua Feng & Todd Jewell, 2021. "Productivity and efficiency at english football clubs: a random coefficient approach," Scottish Journal of Political Economy, Scottish Economic Society, vol. 68(5), pages 571-604, November.
    8. Guohua Feng & Chuan Wang & Apostolos Serletis, 2018. "Shadow prices of $$\hbox {CO}_{2}$$ CO 2 emissions at US electric utilities: a random-coefficient, random-directional-vector directional output distance function approach," Empirical Economics, Springer, vol. 54(1), pages 231-258, February.
    9. Orea, Luis, 2019. "The Econometric Measurement of Firms’ Efficiency," Efficiency Series Papers 2019/02, University of Oviedo, Department of Economics, Oviedo Efficiency Group (OEG).
    10. Guohua Feng & Bin Peng & Xiaohui Zhang, 2017. "Productivity and efficiency at bank holding companies in the U.S.: a time-varying heterogeneity approach," Journal of Productivity Analysis, Springer, vol. 48(2), pages 179-192, December.
    11. Mai, Nhat Chi, 2015. "Efficiency of the banking system in Vietnam under financial liberalization," OSF Preprints qsf6d, Center for Open Science.
    12. Feng, Guohua & Zhang, Xiaohui, 2014. "Returns to scale at large banks in the US: A random coefficient stochastic frontier approach," Journal of Banking & Finance, Elsevier, vol. 39(C), pages 135-145.
    13. Cortés-García, J. Salvador & Pérez-Rodríguez, Jorge V., 2024. "Heterogeneity and time-varying efficiency in the Ecuadorian banking sector. An output distance stochastic frontier approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 93(C), pages 164-175.
    14. A. Peyrache & A. N. Rambaldi, 2017. "Incorporating temporal and country heterogeneity in growth accounting—an application to EU-KLEMS," Journal of Productivity Analysis, Springer, vol. 47(2), pages 143-166, April.
    15. Jan Kluge & Sarah Lappöhn & Kerstin Plank, 2023. "Predictors of TFP growth in European countries," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 50(1), pages 109-140, February.
    16. Michaelides, Panayotis G. & Vouldis, Angelos T. & Tsionas, Efthymios G., 2010. "Globally flexible functional forms: The neural distance function," European Journal of Operational Research, Elsevier, vol. 206(2), pages 456-469, October.
    17. Tai-Hsin Huang & Yi-Huang Chiu & Chih-Ying Mao, 2021. "Imposing Regularity Conditions to Measure Banks’ Productivity Changes in Taiwan Using a Stochastic Approach," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 28(2), pages 273-303, June.
    18. Cassey Lee, . "The Exporting and Productivity Nexus: Does Firm Size Matter?," Chapters, in: Chin Hee Hahn & Dionisius A. Narjoko (ed.), Globalization and Performance of Small and Large Firms, chapter 8, pages VIII-1 - , Economic Research Institute for ASEAN and East Asia (ERIA).
    19. Barseghyan, Levon & DiCecio, Riccardo, 2011. "Entry costs, industry structure, and cross-country income and TFP differences," Journal of Economic Theory, Elsevier, vol. 146(5), pages 1828-1851, September.
    20. Filip Abraham & Jozef Konings & Veerle Slootmaekers, 2010. "FDI spillovers in the Chinese manufacturing sector," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 18(1), pages 143-182, January.

    More about this item

    Keywords

    Firm size distribution; Missing middle; Productivity; Efficiency; Stochastic frontier;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:qld:uq2004:581. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SOE IT (email available below). General contact details of provider: https://edirc.repec.org/data/decuqau.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.