The Performance and Structure of Small & Medium Enterprises: An Empirical Evidence from Pakistan

Abstract

The sole purpose of the study is to carve out the performance and
structure of the small and medium scale manufacturing sector of
Pakistan in terms of employment and productivity. The present study
has incorporated the transcendental logarithmic cost function to apply
on secondary, cross section data of the 3-digit forty nine SMEs of
Pakistan. This functional form allows for and assists in exploring the
true production structure of the firms. It has been revealed that
structure of SMEs in Pakistan is based on Non-homothetic, Nonhomogeneous,
Variable returns to scale and Non-unitary elasticities. It
has further been found that SMEs are overwhelmingly efficient as the
pro- SMEs advocate them, in terms of employment generation and
productivity, as capital and labor are found to be substitutes, which
means employment generation is possible without the expansion in
capital in a densely populated country like Pakistan. The conclusion
suggests that although public policy should be targeted to provide
parallel support to capital and labor yet distinguished favor should be
given to labor to generate employment in SMEs of Pakistan.