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Institutions and the Scale Effect

  • Alex Trew


Growth models which imply a scale effect are commonly refuted on the basis of empir?ical evidence. A focus on the extent of the market as opposed to the scale of the country has led recent studies to reconsider the role that country scale plays when conditioning on other factors. We consider a variant of a simple learning by doing model to account for the potential role for institutions in determining the strength ¨C and direction ¨C of the scale effect. Using cross-country data, we find a significant interaction between property rights institutions and the effect of scale on long-run growth: In countries with poor prop?erty rights institutions, scale is positively related with income per capita; where property rights institutions are good, higher scale is associated with lower per capita incomes. We find no evidence of such role for contracting institutions.

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Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 200906.

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Date of creation: 15 Sep 2009
Date of revision: 03 Apr 2011
Handle: RePEc:san:cdmawp:0906
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