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Increasing Returns and the Growth of Industries in the EU Regions: Paradoxes and Conundrums


  • Alvaro Angeriz
  • John McCombie
  • Mark Roberts


Abstract Verdoorn's law is estimated in a spatial econometric framework for individual manufacturing industries using EU regional data. Estimates of encompassing returns to scale are large, but other explanatory variables, including measures of industrial specialization and diversity, tend to be insignificant. The method of normalization with either output or input growth as the regressor matters, and the use of an instrumental variable approach does not resolve this problem. As in other studies, the static-dynamic Verdoorn law paradox exists. A theoretical argument is made, however, that the dynamic Verdoorn law is the correct specification and this is confirmed empirically. Rendements croissants et croissance des industries dans les régions de l'UE: paradoxes et énigmes Résumé La loi de Verdoorn est estimée dans un cadre conceptuel économétrique spatial pour les industries de fabrication individuelles en utilisant des données régionales de l'UE. Les estimations des rendements croissants à l’échelle, englobant, sont importantes, mais d'autres variables explicatives, comprenant des mesures de spécialisation et de diversité industrielles, ont tendance à être insignifiantes. La méthode de normalisation utilisant comme variable indépendante soit la croissance d'entrée soit celle de sortie importe, et l'utilisation d'une approche IV ne résout pas ce problème. Comme dans d'autres études, le paradoxe statique-dynamique de la loi de Verdoorn est présent. Cependant, dans un argument théorique, nous avançons que la loi de Verdoorn dynamique est la spécification correcte, ce qui est confirmé empiriquement. Aumento de las ganancias y crecimiento de la industria en las regiones de la UE: paradojas y acertijos Résumén Se estima la Ley de Verdoorn en un marco econométrico espacial para empresas manufactureras individuales usando los datos regionales de la UE. Las estimaciones para las ganancias englobadas a escala son grandes, pero otras variables explicativas, incluyendo las medidas de especialización y diversidad industrial, tienden a ser insignificantes. Importa el método de normalización ya sea usando crecimiento de ganancias o entradas como regressor, y el uso de un enfoque IV no resuelve este problema. Al igual que en otros estudios existe la paradoja estática-dinámica de la ley de Verdoorn. Sin embargo, se argumenta teóricamente que la dinámica ley de Verdoorn es la especificación correcta y esto se confirma empíricamente.

Suggested Citation

  • Alvaro Angeriz & John McCombie & Mark Roberts, 2009. "Increasing Returns and the Growth of Industries in the EU Regions: Paradoxes and Conundrums," Spatial Economic Analysis, Taylor & Francis Journals, vol. 4(2), pages 127-148.
  • Handle: RePEc:taf:specan:v:4:y:2009:i:2:p:127-148 DOI: 10.1080/17421770902833972

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    References listed on IDEAS

    1. Törmä, Hannu & Rutherford, Thomas, 1993. "Integrating Finnish Agriculture into EC," Research Reports 13, VATT Institute for Economic Research.
    2. Jones, Rich & Whalley, John, 1989. "A Canadian regional general equilibrium model and some applications," Journal of Urban Economics, Elsevier, vol. 25(3), pages 368-404, May.
    3. Törmä Hannu, Rutherford Thomas, Vaittinen Risto, 1995. "What Will EU Membership and the Value-Added Tax Reform Do to Finnish Food Economy? - A Computable General Equilibrium Analysis," Discussion Papers 88, VATT Institute for Economic Research.
    4. Mark D. Partridge & Dan S. Rickman, 1998. "Regional Computable General Equilibrium Modeling: A Survey and Critical Appraisal," International Regional Science Review, , vol. 21(3), pages 205-248, December.
    5. Valkonen, Tarmo, 2002. "Demographic Uncertainty and Taxes," Discussion Papers 816, The Research Institute of the Finnish Economy.
    6. Vaittinen Risto, 2004. "Trade Policies and Integration - Evaluations with CGE Models," Research Reports 109, VATT Institute for Economic Research.
    7. Matthew W. Peter & Mark Horridge & G.A.Meagher & Fazana Naqvi & B.R.Parmenter, 1996. "The Theoretical Structure of MONASH-MRF," Centre of Policy Studies/IMPACT Centre Working Papers op-85, Victoria University, Centre of Policy Studies/IMPACT Centre.
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    Cited by:

    1. repec:ilo:ilowps:470930 is not listed on IDEAS
    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 Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    3. Storm, Servaas. & Naastepad, C.W.M., 2012. "Wage-led or profit-led supply : wages, productivity and investment," ILO Working Papers 994709303402676, International Labour Organization.
    4. Richard Harris & John Moffat, 2011. "Plant-level Determinants of Total Factor Productivity in Great Britain, 1997-2006," SERC Discussion Papers 0064, Spatial Economics Research Centre, LSE.
    5. repec:psl:pslqrr:2017:13 is not listed on IDEAS

    More about this item


    Increasing returns; Verdoorn's law; manufacturing; productivity growth; spatial econometrics; O18; O33; R11;

    JEL classification:

    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes


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