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American Economic Review: Vol. 89 No. 1 (March 1999)

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Scale Economies and Industry Agglomeration Externalities: A Dynamic Cost Function Approach

Article Citation

Morrison Paul, Catherine J., and Donald S. Siegel. 1999. "Scale Economies and Industry Agglomeration Externalities: A Dynamic Cost Function Approach." American Economic Review, 89(1): 272-290.

DOI: 10.1257/aer.89.1.272

Abstract

Scale economies and agglomeration externalities are alleged to be important determinants of economic growth. To assess these effects, the authors outline and estimate a microfoundations model based on a dynamic cost function specification. This model provides for the separate identification of the impacts of externalities and cyclical utilization on short- and long-run scale economies and input substitution patterns. The authors find that scale economies are prevalent in U.S manufacturing; cost savings and scale effects often attributed to internal inputs may be due to external factors; and supply-side agglomeration effects are greater than demand-side, especially in the long run.

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Authors

Morrison Paul, Catherine J. (U CA, Davis)
Siegel, Donald S. (AZ State U W)

JEL Classifications

O47: Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
E23: Macroeconomics: Production


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