Estimating the returns to scale is a classic problem of economics. In this paper we show how to efficiently estimate the returns to scale without making unnecessary parametric or exogeneity assumptions. Specifically, the production function and its degree of homogeneity are both assumed to be unknown and we show how to estimate the latter — which can now be interpreted as the returns to scale —...

This paper calculates returns to scale and productivity growth (allowing for nonconstant returns to scale) in UK manufacturing establishments in the electronics and food industries. Our results show that foreign establishments tend to have lower returns to scale than their domestic counterparts. We also examine the effect of the acquisition of a domestic establishment by a foreign owner on retu...

Economic activity in different industries is linked to each other through aggregate income (horizontal linkages) and input-output relationships (vertical linkages). Could such linkages give rise to vicious circles of underdevelopment or virtuous circles of development when there are increasing returns to scale at the firm level? We show that vicious or virtuous circles based on demand linkages ...

It should now become obvious the our profit and cost functions derived from production functions, and demand functions derived from utility functions are all homogeneous functions. Using these functions offers us ease of interpretation of key economic ideas. Consider the following idea related to production functions, the returns to scale. Let f(x) be the production function. Then if it were ho...