Externalities, Cross-Sectoral Spillovers and Productivity Growth
We provide an interpretation of the productivity dynamics in the manufacturing sector based on the idea of the thick market externality Ã la Diamond. An econometric model has been estimated which allows to disentangle the long run effects of these trading externalities from those of internal economies of scale and of aggregate industry-level economies. The results obtainedâ€”based on a cointegrated system of non-linear-error-correction equationsâ€”confirm the hypothesis that the trading externality matters. Moreover, our findings point out that the emphasis generally posited both on internal and external economies of scale is not justified. Copyright Kluwer Academic Publishers 1997
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