The main purpose of this study is to attempt to explore the economies of scale of township enterprises in Mainland China.
This paper is divided into five sections. Section one is the introduction. Section two talks about the nature of the economies of scale. Section three sets up three indexes to measure the economies of scale, and then calculates them using available data released by Mainland China. In section four, we test the hypothesis to see whether economies of scale in township ‘enterprises result from economies of scope, pull factors and push factors. Finally, in section five we present some preliminary findings.
Our preliminary findings are as follows:
(1) The scale of enterprise in Mainland China is a little less than the minimum
optimal scale according to the three indexes for measuring economies of scale, based on the unspecified production function method. These results imply that obvious economies of scale exist, and, therefore, increasing the scale of operations will enhance economic efficiency.
(2) Because a scale-augmenting technology is not autonomous and is costly, the government or the authorities concerned must provide enough incentives for enterprises to expand their scale of operations.
(3) In this paper, the extent of specification by areas is used as a proxy variable for industrial structure by areas. Industrial structure by areas will be changed directly by industrial policies which are conducted by the government or the authorities. We find that the more specification by areas there is, the more economies of scale there are. This is because of the learning effect. The implication is that an improper industrial policy will result in a harmful environment for enterprises to expand their scale of operations and may reduce their incentive to adopt any new technology.
(4) The implicit market potential is the most important incentive for enterprises adopting a scale-augmenting technology.
(5) Besides the implicit market potential, the labor force by areas is a key factor as well. Township enterprises not only absorb a lot of excess labor, but they slow down the rate of migration from the rural to urban sectors. That is good both for helping resolve the very serious underemployment in rural areas and for reducing the pressure on housing, transportation, utilities, and so on in urban areas.
(6) Theoretically, the potential supply of materials by areas is a very important factor that affects the economies of scale of township enterprises in Mainland China. However, no firm conclusion can be drawn due to the heavy multicollinearity that is found to exist among the variables in this study.
