Size and Age as Determinants of Employment Growth Among Manufacturing Firms in Pakistan

Industrial policy in Pakistan is based on firm size in that certain subsidies and incentives are provided to small and medium firms but n. to others. This is usually justified on the basis of an assumed inverse relationship between size and firm dynamism. whereby smaller firms are believed to grow faster in terms of output. productivity and employment. With regard to employment growth. no prior studies for Pakistan have actually shown an inverse link with size. Nor have any Pakistani studies investigated the joint roles of size and age in determining employment growth. as suggested by some theoretical models and confirmed by some empirical studies. We address this gap by examining the joint relationships among firm size. firm age and employment growth in the case of manufacturing firms in Pakistan. We show for the first time for the case a Pakistan that employment growth is inversely linked to firm size. We also show that this inverse relationship is robust to the inclusion of age as a possible determinant of employment dynamism. Age. however. is not found to be an independent determinant of employment growth.