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Economies of scale and small firms in developing countries: Theoretical and empirical issues
Author(s) -
Elleithy Amr
Publication year - 1992
Publication title -
journal of international development
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.533
H-Index - 66
eISSN - 1099-1328
pISSN - 0954-1748
DOI - 10.1002/jid.3380040408
Subject(s) - developing country , context (archaeology) , scale (ratio) , economies of scale , economics , production (economics) , business , division of labour , industrial organization , labour economics , economic growth , market economy , marketing , macroeconomics , paleontology , physics , quantum mechanics , biology
The main objective of this paper is to examine the existence of economies of scale in small firms in the context of developing countries. The results are based on a survey of 52 carpentry firms at Anloga, Kumasi, Ghana. Parameters considered for the analysis are: product and labour specialization, division of labour, and mechanization and capacity utilization of power‐driven machines. These parameters were examined in the light of recent trends in the Ghanaian economy in the late 1980s. Despite the limitations of the study, due to the relatively small sample size and the difficulties of obtaining reliable information from small firms, it provides insight into the achievement of economies of scale in the small finns sector. Many firms are specialized and their skilled workers carry out specific tasks. The capacity utilization of machines is relatively high. Moreover, it was found that the average ratio of production costs to value of output is lower in the larger firms of the sector. The findings provide some evidence in support of the viability of the sector in developing countries. Assistance in marketing, technology and management are proposed to improve further the firm's performance. This assistance will not be effective unless provided within a framework of unbiased and supportive macroeconomic policies.