The Role of External Economies in U.S. Manufacturing / Ricardo J. Caballero, Richard K. Lyons.

Format:

Book

Author/Creator:

Caballero, Ricardo J.

Contributor:

National Bureau of Economic Research.

Lyons, Richard K.

Series:

Working Paper Series (National Bureau of Economic Research) no. w3033.

NBER working paper series no. w3033

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1989.

Summary:

This paper develops a method for joint estimation of both the degree of internal returns to scale and the extent of external economies. We apply the method in estimating returns to scale indexes for U.S. manufacturing industries at the two-digit level. Overall, we find that only three of the twenty industry categories show any evidence of internal increasing returns: (1) Primary Metals, (2) Electrical Machinery, and (3) Paper Products. More striking, however, is the very strong evidence of the existence of external economies, where external is defined as external to a given two-digit

industry and internal to the U.S.. According to our preferred estimates, if all manufacturing industries simultaneously raise their inputs by 10%, aggregate manufacturing production rises by 13%, of which about 5% is due to external economies. Thus, when an industry increases its inputs in isolation by 10%, its output rises by no more than 8%.

Notes:

Print version record

July 1989.