Are Small Firms Really Less Productive? An Analysis of Productivity Differentials and Firm Dynamics

Small and medium-sized establishments (SMEs) account a large proportion of industrial employment and production in almost all countries. Moreover, the recent literature emphasizes the role SMEs play in nurturing entrepreneurship and generating new products and processes. Although SMEs could be a source of new ideas and innovations, there are substantial productivity differences between small and large establishments. In this paper, we analyze three sources of productivity differentials: technical change, returns to scale, and technical change. Our analysis on the creation, survival, and growth of new establishments in Turkish manufacturing industries in the period 1987-97 shows that all these three factors play a very important role in determining the survival probability and growth prospects of new establishments.