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Small Business Economics

, Volume 53, Issue 3, pp 739–752 | Cite as

On the productive efficiency of Australian businesses: firm size and age class effects

  • Marc CowlingEmail author
  • George Tanewski
Article

Abstract

After 26 years of growth, the Australian economy is beginning to show signs of stress and declining productivity. In this paper, we consider aspects of productive efficiency using an Australian business population data set. Using a production function approach, several key findings are uncovered. Firstly, decreasing returns to scale are identified as a significant feature of the Australian business sector. This implies that not all firm growth will lead to productivity gains. Secondly, there are significant differences in the way value added is created between small and large firms. In the largest 25% of firms, the capital contribution to value added is four times that of the smallest 25% of firms. Thirdly, efficiency follows an inverted ‘U’ shaped in firm age with the youngest (0–2 years) and oldest (> 9 years) firms being less productive than the middle 50% of firms. Fourthly, there are also huge industry sector variations in productivity. In particular, financial services appears to be the most productively efficient sector in the Australian economy and mining the least efficient.

Keywords

Productivity Firm size Firm age Capital and labour effects Technology 

JEL Classification

D21 D22 D24 J24 L23 

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Brighton Business SchoolUniversity of BrightonBrightonUK
  2. 2.Deakin Business SchoolDeakin UniversityBurwoodAustralia

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