DP2896 Economies of Scale in European Manufacturing Revisited

Author(s): Espen Henriksen , Frode Steen , Karen-Helene Ulltveit-Moe

Publication Date: July 2001

Keyword(s): internal and external economies of scale , new economic geography , clusters

JEL(s): C33 , D24 , O47 , R12

Programme Areas: International Trade and Regional Economics

Link to this Page: www.cepr.org/pubs/dps/DP2896.asp

We test for internal and external economies of scale in European manufacturing, employing a more disaggregated data set than has been used in earlier analyses. We aim to separate externalities from common business cycle effects. Fifteen European manufacturing industries in Germany, France, the UK and Italy are analysed. We focus on economies of scale at three levels: the national industry, the national industrial cluster and the transnational industry. Our results suggest that external economies of scale arising from inter-industry external effects and cross-country effects are less prevalent than increasing returns at the level of the industry and firm. Our results underscore the importance of the level of disaggregation in studies of internal and external economies of scale and argue that the external effects are highly country and industry specific.