Optimal Plant Size and Its Determinants in Manufacturing Industries in Iran

The terms Nominal as well as Actual capacity are commonly used to describe the situation of manufacturing industries at country, region or industry levels. However, in the economic literature, optimal plant size is considered as one of the key concepts by which the characteristics of an industry are distinguished from other industries, and unlike the aforementioned capacities, this size cannot be treated as a fixed and given size. In this manner, the optimal plant size is affected by the behavior of active firms in each industry. and both internal and external factors can change it over time. Accordingly, using various methods, several studies have attempted to estimate optimal plant size in industries, sectors and regions and identify its determinants. This article has also tried to determine this size and its determinants in Iranian manufacturing industries at four-digit industry levels. As expected and consistent with previous studies, the results of this study indicate that optimal plant size is strongly influenced by the size of the structure (distribution) of its plants. In addition, the results show that location of firms (in terms of developed and less developed in comparison with undeveloped regions), firm productivity as well as using high and medium technology levels (in comparison with low technology level and resource based technology), investment and concentration ratio have a significant positive impact on the optimal plant size. However, the impact of ownership structure (cooperative and private in comparison with public structure) and the firm's profitability on the optimal plant size is negative and significant. Nevertheless, the impact of industry growth as external factors on the optimal plant size is controversial. Therefore, the optimal plant size in any industry is a dynamic variable that is influenced by several factors. Accordingly and in terms of policy implication a dynamic approach should be considered to determine the optimal plant size.