A key feature of early endogenous growth models is their prediction of scale effects – the larger the economy, as measured by population, the number of firms or employment, the faster the economy should grow. However, empirical work has failed to support the existence of scale
effects. As a result, much human capital has been expended in order to ‘fix’ this problem by eliminating scale effects in endogenous growth models. We contend that econometric techniques used in the empirical search for scale effects are inconsistent with growth theory. Using data
from US states and an econometric technique that better matches growth theory by allowing each economy to have its own steady state, we provide empirical support for the existence of scale effects. Results call into question the need to reformulate the first models of endogenous growth.
No Reference information available - sign in for access.
No Citation information available - sign in for access.
No Supplementary Data.
No Article Media
Document Type: Research Article
Department of Economics,California State University-Sacramento, 6000 J Street, Tahoe HallSacramentoCA 95819, USA
Department of Economics,University of New Hampshire, 15 College RoadDurhamNH 03824, USA
Publication date: 2011-10-01
More about this publication?