Abstract
The objective of this article is to assess the possibility of differences in factor substitution in the production of small and large U.S. manufacturing establishments. For empirical implementation, we specify and estimate separate three-factor translog production factors, using confidential plant-level data for five four-digit industries extracted from the U.S. Bureau of the Census Longitudinal Research Database. Our primary finding is that for most industries under study, small establishments appear to be at least as flexible as large establishments in factor substitution. This finding, together with our previous results on economies of scale (Nguyen and Reznek, 1991), suggests that for the five industries under examination, large size is not a necessary condition for efficient production.
Similar content being viewed by others
References
Allen, R. D. G., 1938,Mathematical Analysis For Economists, London: MacMillan.
Anderson, R. G. and J. G. Thursby, 1986,‘Confidence Intervals for Elasticity Estimators in Translog Models’,Review of Economics and Statistics 3, 647–656.
Berndt, E. R. and L. R. Christensen, 1973, ‘The Translog Function and the Substitution of Equipment, Structures, and Labor in U.S. Manufacturing 1929–68’,Journal of Econometrics 1, 81–114.
Berndt, E. R. and D. O. Wood, 1975, ‘Technology, Process, and the Derived Demand for Energy’,The Review of Economics and Statistics 68, 647–656.
Blackorby, C. and R. R. Russell, 1989, ‘Will the Real Elasticity of Substitution Please Stand Up? (A Comparison of the Allen/Uzawa and Morishima Elasticities)’,American Economic Review 79, 882–888.
Brock, W. A. and D. S. Evans, 1986,The Economics of Small Business: Their Role and Regulation in the U.S. Economy, New York: Hohlms and Meier Publishers.
Burgess D. F., 1975, ‘Duality Theory and Pitfalls in the Specification of Technologies’,Journal of Econometrics 3, 105–121.
Chambers, R. G., 1988,Applied Production Analysis: A Dual Approach, New York: Cambridge University Press.
Christensen, L. R. and W. H. Green, 1976, ‘Economies of Scale in U.S. Electric Power Generation’,Journal of Political Economy 84, 655–676.
Christensen, L. R., D. W. Jorgenson, and L. J. Lau, 1971, ‘Conjugate Duality and the Transcendental Logarithmic Production Function’,Econometrica 39, 255–266.
Dhrymes, P. J., 1989, ‘Autoregressive Errors in Singular Systems of Equations’, unpublished paper presented at the Center for Economic Studies Seminar on April 13.
Diewert, W. E. and T. J. Wales, 1987, ‘Flexible Functional Forms and Global Curvature Conditions’,Econometrica 55, 43–68.
Guilkey, D. K., C. A. K. Lovell, and R. C. Sickles, 1983, ‘A Comparison of the Performance of Three Flexible Functional Forms’,International Economic Review 24, 591–616.
Kmenta J. and R. F. Gilbert, 1968, ‘Small Sample Properties of Alternatives Estimators of Seemingly Unrelated Regressions’,Journal of the American Statistical Association 63, 1180–1200.
Kokkelenberg, E. C. and S. V. Nguyen, 1987, ‘A Comparison of Three Flexible Functional Cost Forms Using Plant Level Data’, Paper presented at the 1987 American Economic Association Conference in Chicago, December.
Kokkelenberg, E. C. and S. V. Nguyen, 1989, ‘Modelling Technical Progress and Multifactor Productivity: A Plant Level Example’,Journal of Productivity Analysis 1, 69–90.
McFadden, D., 1978, ‘The General Linear Profit Function’, in M. Fuss and D. McFadden (eds.),Production Economics: A Dual Approach to Theory and Application, Vol. 1, Amsterdam: North-Holland, pp. 269–286.
McGuckin, R. and G. Pascoe, 1988, ‘The Longitudinal Research Database: Status and Research Possibilities’,Survey of Current Business, 30–37.
Magnus, J. R., 1979, ‘Substitution Between Energy and Non-Energy in the Netherlands 1950–1976’,International Economic Review 20, 465–484.
Marschak, T. and R. R. Nelson, 1962, ‘Flexibility, Uncertainty, and Economic Theory’,Metroeconomica 14, 42–60.
Mills, D. E. and L. Schumann, 1985, ‘Industry Structure with Fluctuating Demand’,American Economic Review 4, 758–67.
Nguyen, S. V. and A. Reznek, 1989, ‘Production Technologies, Economies of Scale, and Factor Substitution in Large and Small U. S. Manufacturing Establishment: A Pilot Study’, AReport submitted to the U.S. Small Business Administration, October.
Nguyen, S. V. and A. Reznek, 1991, ‘Returns to Scale in Small and Large U.S. Manufacturing Establishments’,Small Business Economics 3, 197–214.
SAS Institute Inc., 1984,SAS Users Guide Version 5 Edition, Cary, NC: SAS Institute, Inc.
SAS Institute Inc., 1985, SAS Users Guide: Basics, Version 5 Edition, Cary, NC: SAS Institute Inc.
Solow, J. L., 1987, ‘The Capital-Energy Complementarity Debate Revisited’,American Economic Review 77, 605–614.
Stigler, G. J. 1939, ‘Production and Distribution in the Short-Run’,Journal of Political Economy 47, 305–27.
U.S. Small Business Administration, 1987,The State of Small Business: A Report of the President to the Congress 1987, Washington D.C.: U.S. Government Printing Office.
Zellner, A., 1963, ‘Estimators of Seemingly Unrelated Regressions: Some Exact Finite Samples Results’,Journal of American Statistical Association 58, 977–92.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Nguyen, S.V., Reznek, A.P. Factor substitution in small and large U.S. manufacturing establishments: 1977–82. Small Bus Econ 5, 37–54 (1993). https://doi.org/10.1007/BF01539317
Accepted:
Issue Date:
DOI: https://doi.org/10.1007/BF01539317