Impact of plant size and focus on productivity: An empirical study

Recent popular business literature has suggested that there is a significant trend in the United States for firms to decrease the size and increase the focus of manufacturing plants they operate, and that this leads to higher productivity. This paper tests empirically the validity of these claims. The authors analyze data on virtually the entire population of manufacturing plants in the United States and find that, contrary to the popular business literature, the average size of plants increased during the period 1972-1984. However, consistent with the popular notion, the rate of growth in plant size slowed considerably, and even turned negative for a category of large plants. Plat focus did increase during this peirod. The authors then investigate the relationship between productivity and plant characteristics including plant size and plant focus. Overall, the present results do not support the popular argument that reduction in plant size results in productivity gains. However, the authors do find support for this argument in some two-digit SIC industries; also, scale economies in the entire population decreased over the period 1972-1982. They also find only limited support for the popular argument that plant focus increases productivity.