Small Manufacturing Enterprises in Developing Countries

Abstract

Emphasis is often placed on the promotion of small enterprises in developing countries, particularly as a means of improving the lot of unskilled workers. This focus raises questions about the relationship between establishment size and the pattern and efficiency of factor use, and about the nature and effects of price differentials in factor markets. This article goes some way toward answering these questions with data from surveys of small manufacturing enterprises in India and Colombia sponsored by the World Bank and relevant material from other countries. The article also examines India's long-standing policy, unusual among developing countries, of providing special support and protection for small enterprises. Analyses based on disaggregated data found that small firms are not reliably more labor-intensive than their larger counterparts; nor are they consistently more technically efficient in their use of resources. In light of these findings and an analysis of factor markets, this article discusses the general implications of the research results for industrial policy in developing countries.