Working Paper: NBER ID: w28633
Authors: Jeanne LaFortune; Ethan G. Lewis; José Pablo Martínez; José Tessada
Abstract: This paper estimates returns to scale for manufacturing industries around the turn of the twentieth century in the United States by exploiting an industry-city panel data for the years 1880-1930. We estimate decreasing returns to scale on average over the period, contrary to most of the existing literature, because our empirical methodology allows us to separate returns to scale from "agglomeration" effects. We also find that returns to scale grew substantially after 1910, mostly because the return to labor grew. We find that this was more marked in industries that were more intensive in human capital and energy at the beginning of the period and in cells that were less competitive. Overall, results suggest that technological change and lack of initial competition played relevant roles in the rise of larger establishments in manufacturing.
Keywords: returns to scale; manufacturing; skilled labor
JEL Codes: J23; N61; N62; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| returns to scale (D24) | productivity (O49) |
| city fixed effects (C23) | upward bias in returns to scale estimates (C51) |
| returns to scale (1880-1900) (N13) | returns to scale (1910-1930) (D24) |
| increase in returns to scale (O40) | changes in returns to factors (E25) |
| capital-skill complementarity (J24) | growth in returns (O40) |
| new energy sources (Q42) | growth in returns (O40) |
| increasing market concentration (L11) | growth in returns (O40) |