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Differences in increasing returns between technological sectors

Author

Listed:
  • João P. Romero
  • John S.L. McCombie

Abstract

Purpose - The purpose of this paper is twofold: to investigate the existence of different degrees of returns to scale in low-tech and high-tech manufacturing industries; and to examine whether the degrees of returns to scale change through time. Design/methodology/approach - The empirical investigation implemented in the paper uses data from the EU KLEMS Database, covering a sample of 12 manufacturing industries in 11 OECD countries over the period 1976-2006. The investigation employed two different estimation methods: instrumental variables and system GMM. The robustness of the results was assessed by employing two different specifications of Kaldor-Verdoorn’s Law, by using lags and five-year averages to smooth business-cycle fluctuations, and by dividing the sample into two time periods. Findings - The results reported in the paper provide strong evidence in support of the hypothesis of substantial increasing returns to scale in manufacturing. The investigation suggests that high-tech manufacturing industries exhibit larger degrees of returns to scale than low-tech manufacturing industries. Finally, the analysis revealed also that the magnitude of the returns to scale in manufacturing have increased in the last decades, driven by increases in the magnitude of returns to scale observed in high-tech industries. Originality/value - No previous work has assessed the hypothesis that increasing returns to scale vary according to the technological content of industries. Moreover, no previous work has used system GMM or data from EU KLEMS to test Kaldor-Verdoorn’s Law. Most importantly, the findings of the paper present new evidence on the degree of returns to scale in high-tech and low-tech manufacturing industries.

Suggested Citation

  • João P. Romero & John S.L. McCombie, 2016. "Differences in increasing returns between technological sectors," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 43(5), pages 863-878, October.
  • Handle: RePEc:eme:jespps:v:43:y:2016:i:5:p:863-878
    DOI: 10.1108/JES-03-2015-0045
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    Citations

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    Cited by:

    1. Menaker Joseph & Ozoliņa Velga, 2018. "Latvian High-Tech Industry: Trends and Developments," Economics and Business, Sciendo, vol. 32(1), pages 160-171, July.
    2. João Prates Romero, 2016. "Increasing Returns To Scale, Technological Catch-Up And Research Intensity: An Industry-Level Investigation Combining Eu Klems Productivity Data With Patent Data," Anais do XLIII Encontro Nacional de Economia [Proceedings of the 43rd Brazilian Economics Meeting] 102, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    3. Ross Garnaut & Craig Emerson & Reuben Finighan & Stephen Anthony, 2020. "Replacing Corporate Income Tax with a Cash Flow Tax," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 53(4), pages 463-481, December.
    4. Marwil J. Dávila-Fernández, 2018. "Alternative Approaches to Technological Change when Growth is BoPC," Department of Economics University of Siena 795, Department of Economics, University of Siena.
    5. Marwil J. Dávila-Fernández, 2020. "Alternative approaches to technological change in a small open economy," Journal of Evolutionary Economics, Springer, vol. 30(2), pages 279-317, April.

    More about this item

    Keywords

    Manufacturing sector; Increasing returns; Kaldor-Verdoorn’s law; Productivity growth; O11; O47; O40;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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