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New Estimates of Returns to Scale and Spatial Spillovers for EU Regional Manufacturing, 1986—2002

Listed author(s):
  • Alvaro Angeriz

    (Cambridge Centre for Economic and Public Policy, Department of Land Economy, University of Cambridge and Wolfson College, Cambridge, United Kingdom, aa314@cam.ac.uk)

  • John McCombie

    (Cambridge Centre for Economic and Public Policy, Department of Land Economy, University of Cambridge and Wolfson College, Cambridge, United Kingdom, jslm2@cam.ac.uk)

  • Mark Roberts

    (Cambridge Centre for Economic and Public Policy, Department of Land Economy, University of Cambridge and Wolfson College, Cambridge, United Kingdom, mr10013@cam.ac.uk)

This article presents some new estimates of the degree of returns to scale for European regional manufacturing, for the period 1986—2002. To obtain these estimates, the article makes use of a Verdoorn law framework, estimating both demand- and supply-side versions of the law. Estimation is further embedded within a spatial econometric framework that allows for both ``substantive'' and ``nuisance'' sources of spatial autocorrelation. The former arises from cross-regional spillovers in the growth process, while the latter is a result of the use of the administrative NUTS1 definition of regions. Whereas the demand-side version of the Verdoorn law yields estimates of substantial increasing returns, the supply-side version is unable to refute the hypothesis of constant returns. It is argued, however, that the demand-side version is to be preferred on a priori grounds. The article also considers the static-dynamic Verdoorn law paradox and successfully confirms a recently proposed explanation of this paradox.

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File URL: http://irx.sagepub.com/content/31/1/62.abstract
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Article provided by in its journal International Regional Science Review.

Volume (Year): 31 (2008)
Issue (Month): 1 (January)
Pages: 62-87

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Handle: RePEc:sae:inrsre:v:31:y:2008:i:1:p:62-87
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