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Scale effects in growth: A role for institutions

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  • Davis, Lewis S.

Abstract

Reliance on a Dixit-Stiglitz production function leads the growth literature naïvely to associate economic scale with the size of a country's population. I develop an alternative approach in which market size is endogenous, reflecting a trade-off between the gains to exploiting non-rival skills and market transaction costs. Transaction costs reflect a country's institutional framework. The model supports scale effects in transitional growth rates and steady state income levels, suggesting scale effects may be important for developing countries. In this framework effective market size depends on a country's institutions. It is independent of population size and other macroeconomic variables.

Suggested Citation

  • Davis, Lewis S., 2008. "Scale effects in growth: A role for institutions," Journal of Economic Behavior & Organization, Elsevier, vol. 66(2), pages 403-419, May.
  • Handle: RePEc:eee:jeborg:v:66:y:2008:i:2:p:403-419
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    Cited by:

    1. Haiwen Zhou, 2012. "Internal Rebellions and External Threats: A Model of Government Organizational Forms in Ancient China," Southern Economic Journal, Southern Economic Association, vol. 78(4), pages 1120-1141, April.
    2. David Castells-Quintana & Vicente Royuela, 2017. "Tracking positive and negative effects of inequality on long-run growth," Empirical Economics, Springer, vol. 53(4), pages 1349-1378, December.
    3. Aoudji, Augustin K.N. & Adégbidi, Anselme & Agbo, Valentin & Atindogbé, Gilbert & Toyi, Mireille S.S. & Yêvidé, Armand S.I. & Ganglo, Jean C. & Lebailly, Philippe, 2012. "Functioning of farm-grown timber value chains: Lessons from the smallholder-produced teak (Tectona grandis L.f.) poles value chain in Southern Benin," Forest Policy and Economics, Elsevier, vol. 15(C), pages 98-107.
    4. Trew, Alex, 2009. "Institutions and the Scale Effect," SIRE Discussion Papers 2009-51, Scottish Institute for Research in Economics (SIRE).

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