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Returns to Scale and Externalities in the Consumption and Investment Sectors

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  • Sharon G. Harrison

    (Barnard College, Columbia University)

Abstract

Using data on US manufacturing, I estimate internal returns to scale and external effects for the consumption and investment sectors. I construct panels of data at the industry level and use results of gross output production function estimation to derive implied estimates in a value added specification. For the investment sector, returns to scale appear to be slightly increasing, with evidence of a positive external effect. For consumption, the evidence indicates decreasing to constant returns to scale. I discuss the implications of these results for the empirical plausibility of indeterminacy in recent multi-sector models of the business cycle. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/S1094-2025(03)00034-6
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 6 (2003)
Issue (Month): 4 (October)
Pages: 963-976

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Handle: RePEc:red:issued:v:6:y:2003:i:4:p:963-976

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Related research

Keywords: Production function; Sector-specific externalities; Increasing returns to scale;

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References

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  1. Benhabib, Jess & Nishimura, Kazuo, 1996. "Indeterminancy and Sunspots with Constant Returns," Working Papers, C.V. Starr Center for Applied Economics, New York University 96-44, C.V. Starr Center for Applied Economics, New York University.
  2. Susanto Basu, 1995. "Procyclical Productivity: Increasing Returns or Cyclical Utilization?," NBER Working Papers 5336, National Bureau of Economic Research, Inc.
  3. Susanto Basu & John G. Fernald, 1995. "Aggregate Productivity and the Productivity of Aggregates," NBER Working Papers 5382, National Bureau of Economic Research, Inc.
  4. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1997. "Monetary policy shocks: what have we learned and to what end?," Working Paper Series, Macroeconomic Issues, Federal Reserve Bank of Chicago WP-97-18, Federal Reserve Bank of Chicago.
  5. Benhabib, Jess & Farmer, Roger E A, 1996. "Indeterminacy and Sector-specific Externalities," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1403, C.E.P.R. Discussion Papers.
  6. Eric J. Bartelsman & Wayne Gray, 1996. "The NBER Manufacturing Productivity Database," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0205, National Bureau of Economic Research, Inc.
  7. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 1995. "Capital Utilization and Returns to Scale," NBER Working Papers 5125, National Bureau of Economic Research, Inc.
  8. Susanto Basu & John G. Fernald, 1996. "Returns to scale in U.S. production: estimates and implications," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 546, Board of Governors of the Federal Reserve System (U.S.).
  9. Burnside, Craig, 1996. "Production function regressions, returns to scale, and externalities," Journal of Monetary Economics, Elsevier, Elsevier, vol. 37(2-3), pages 177-201, April.
  10. Basu, Susanto & Fernald, John G., 1995. "Are apparent productive spillovers a figment of specification error?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 36(1), pages 165-188, August.
  11. Harrison, Sharon G., 2001. "Indeterminacy in a model with sector-specific externalities," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 25(5), pages 747-764, May.
  12. Russell Cooper & Alok Johri, 1996. "Dynamic Complementarities: A Quantitative Analysis," NBER Working Papers 5691, National Bureau of Economic Research, Inc.
  13. Bartelsman, Eric J & Caballero, Ricardo J & Lyons, Richard K, 1994. "Customer- and Supplier-Driven Externalities," American Economic Review, American Economic Association, American Economic Association, vol. 84(4), pages 1075-84, September.
  14. Caballero, R.J. & Lyons, R.K., 1991. "External Effects in U.S. Procyclical Productivity," Papers, Columbia - Graduate School of Business 91-19, Columbia - Graduate School of Business.
  15. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(5), pages 921-47, October.
  16. Baxter, Marianne, 1996. "Are Consumer Durables Important for Business Cycles?," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 147-55, February.
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