Economies of scale in European manufacturing revisited

Abstract

We test for internal and external economies of scale in European manufacturing employing a more disaggregated data set than what has been used in earlier analyses, and aim to separate externalities from common business cycle effects. Fifteen European manufacturing industries in Germany, France, the U.K. 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 level of disaggregation in studies of internal and external economies of scale, and also that the external effects are highly country and industry specific.