Scale Economies and Industry Agglomeration Externalities: A Dynamic Cost Function Approach
Catherine J. Morrison Paul, Donald S. Siegel
American Economic Review · 1999 · Volume 89 · Issue 1
Abstract
Scale economies and agglomeration externalities are alleged to be important determinants of economic growth. To assess these effects, the authors outline and estimate a microfoundations model based on a dynamic cost function specification. This model provides for the separate identification of the impacts of externalities and cyclical utilization on short- and long-run scale economies and input substitution patterns. The authors find that scale economies are prevalent in U.S manufacturing; cost savings and scale effects often attributed to internal inputs may be due to external factors; and supply-side agglomeration effects are greater than demand-side, especially in the long run.
Keywords
Measurement of Economic Growth, Aggregate Productivity, Cross-Country Output Convergence, Macroeconomics: Production
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