Productivity of Czech small and medium entreprises: Lagging behind their potential

This paper analyzes microeconomic production functions of Czech small medium enterprises. We use the data from 2002 to 2005 of thirty manufacturing industries (agriculture and services are not included), each divided into five subgroups according to the number of employees. We employ stochastic frontier analysis (SFA) to make statistical inference on the production process. Our results demonstrate that Czech SME depend in their functioning more on labour than on capital. The impact of investment or intangible assets such as software or patents is negligible. SFA strongly supports the presence of a systematic gap between common practice and best practice: the majority of firms significantly differ from top performers. Finally a simple test for time effect shows that between 2003 and 2005 Czech SME moved towards higher efficiency.