The Relationship Between Firm Size and Growth in the Manufacturing Sector in Jordan

Abstract

The fact that most jobs are created by relatively small size firms and that small firms grow faster than the large ones has an important implication for job generation and employment policy, especially in developing countries. As a result, a focus for both researchers and policymakers is to identify the key factors influencing the growth of Small and Medium-sized Enterprises (SMEs). However, in the developing countries, there is almost nothing written on the relationship between the size and the growth performance of SMEs known. Furthermore, in countries such as Jordan very little is known about the growth of SMEs.
The purpose of this paper is to examine the role of firm size on the growth of manufacturing plants in Jordan during the period 1998-2003. In Jordan, unemployment is a serious problem, and if it is shown that the size of a firm has a significant effect on its growth then from a policy point of view as a way of reducing unemployment this should act as an incentive for programs that promote the birth, survival and growth of small firms. The data used in this study are provided by the Jordan Chamber of Industry. This paper shows that the law of proportionate effect (Gibrat’s Law) invalid in the manufacturing sector in Jordan, as smaller firms grow at faster rates in comparison with their larger counterparts. The implication is that the firm size should be an important consideration in the policymaker’s attempts to create jobs as a remedy for unemployment.