Working Paper: CEPR ID: DP2199
Authors: Antonio Ciccone; Giovanni Peri; Douglas Almond
Abstract: Returns to scale to capital and the strength of capital externalities play a key role for the empirical predictions and policy implications of different growth theories. We show that both can be identified with individual wage data and implement our approach at the city-level using US Census data on individuals in 173 cities for 1970, 1980, and 1990. Estimation takes into account fixed effects, endogeneity of capital accumulation, and measurement error. We find no evidence for human or physical capital externalities and decreasing aggregate returns to capital. Returns to scale to physical and human capital are around 80 percent. We also find strong complementarities between human capital and labor and substantial total employment externalities.
Keywords: returns to scale to capital; human capital; capital externalities; complementarities; scale effects; cities
JEL Codes: J30; O00; O40; R00
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Capital accumulation (E22) | Wages (J31) |
| Capital accumulation (E22) | No significant externalities (D62) |
| Human capital and labor complementarity (J24) | Wages (J31) |
| Aggregate employment increase (E24) | Labor productivity increase (O49) |
| Aggregate returns to scale (E23) | Diminishing returns on capital investments (E22) |