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Article
Publication date: 13 December 2019

Baoping Ren and Wei Jie

Constant or decreasing returns and increasing returns to scale are two kinds of mechanism in economic growth. The goal of supply-side structural reform is to promote the…

Abstract

Purpose

Constant or decreasing returns and increasing returns to scale are two kinds of mechanism in economic growth. The goal of supply-side structural reform is to promote the establishment of the mechanism with increasing returns to scale. The paper aims to discuss this issue.

Design/methodology/approach

This paper argues that the overall economic structure of the developing economy has been divided into the sector of constant or decreasing returns to scale and the sector of increasing returns to scale due to the dual economic structure. Among them, the supply-side structural reform is mainly to reduce the sector of decreasing returns to scale and increase the sector of increasing returns to scale. Based on the hypothesis of such two-sector economic structure in the supply side of developing economies and on the industrial data, this paper empirically tests the returns to scale of China’s supply structure. The result suggests that so far the sector of constant or decreasing returns to scale dominates the supply structure of China’s economic growth, which results in the state of decreasing returns to scale in China’s overall economy.

Findings

Therefore, to realize the long-term sustained growth and transformation of the development pattern of China’s economy, the authors must carry out the supply-side structural reform, vigorously develop the modern industrial sectors characterized by modern knowledge and technology, and promote the development of an innovation-driven economy.

Originality/value

Besides, the authors must accelerate the transformation from traditional industrial sectors to modern industrial sectors, actively promote China’s industrial structure toward rationalization and high gradation, as well as build a modern industrial system so as to facilitate the formation of the mechanism of increasing returns to scale and accelerate the transformation of the driving force of China’s economic growth.

Details

China Political Economy, vol. 2 no. 2
Type: Research Article
ISSN: 2516-1652

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Article
Publication date: 1 February 1991

Pablo E. Guidotti, William H. Kaempfer, Alexander M. Pietruska and Leonard F.S. Wang

Recent studies on the welfare implications of internationallymobile capital for a country employing commercial policy have beenrestricted to constant‐returnstoscale

Abstract

Recent studies on the welfare implications of internationally mobile capital for a country employing commercial policy have been restricted to constant‐returnstoscale (CRS) production models. It is generally concluded that the pursuit of such policies is welfare‐decreasing under CRS conditions. The analysis to encompass variable‐returnstoscale (VRS) is generalised and it is shown that there is an optimal (second best) combination of import tariff and foreign capital subsidy that will not be “immiserising” for an increasingreturnstoscale (IRS) industry.

Details

Journal of Economic Studies, vol. 18 no. 2
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 10 October 2016

João P. Romero and John S.L. McCombie

The purpose of this paper is twofold: to investigate the existence of different degrees of returns to scale in low-tech and high-tech manufacturing industries; and to

Abstract

Purpose

The purpose of this paper is twofold: to investigate the existence of different degrees of returns to scale in low-tech and high-tech manufacturing industries; and to examine whether the degrees of returns to scale change through time.

Design/methodology/approach

The empirical investigation implemented in the paper uses data from the EU KLEMS Database, covering a sample of 12 manufacturing industries in 11 OECD countries over the period 1976-2006. The investigation employed two different estimation methods: instrumental variables and system GMM. The robustness of the results was assessed by employing two different specifications of Kaldor-Verdoorn’s Law, by using lags and five-year averages to smooth business-cycle fluctuations, and by dividing the sample into two time periods.

Findings

The results reported in the paper provide strong evidence in support of the hypothesis of substantial increasing returns to scale in manufacturing. The investigation suggests that high-tech manufacturing industries exhibit larger degrees of returns to scale than low-tech manufacturing industries. Finally, the analysis revealed also that the magnitude of the returns to scale in manufacturing have increased in the last decades, driven by increases in the magnitude of returns to scale observed in high-tech industries.

Originality/value

No previous work has assessed the hypothesis that increasing returns to scale vary according to the technological content of industries. Moreover, no previous work has used system GMM or data from EU KLEMS to test Kaldor-Verdoorn’s Law. Most importantly, the findings of the paper present new evidence on the degree of returns to scale in high-tech and low-tech manufacturing industries.

Details

Journal of Economic Studies, vol. 43 no. 5
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 1 January 2006

Nayantara D. Hensel

To examine whether Japanese commercial banks exhibited economies of scale and economies of density at the time when the mega‐merger wave in Japanese banking began in the…

Abstract

Purpose

To examine whether Japanese commercial banks exhibited economies of scale and economies of density at the time when the mega‐merger wave in Japanese banking began in the late 1990s. Since this merger wave has not yielded efficiencies, this analysis aims to shed light on whether banks, at the start of the wave, had reason to believe that larger banks would be more efficient.

Design/methodology/approach

Using a modified version of the translog cost function, the analysis estimates economies of scale and economies of density for Japanese city banks, trust banks, and regional banks. Then, the relationship between size and economies of scale/density and that between profitability and scale/density are explored using regression analysis.

Findings

Results suggest that larger banks (as measured by value of assets/loans/ deposits/investments, and number of employees/branches) were more likely to be in the decreasing/constant returns to scale/density region than smaller banks, The finding was statistically significant for all three types of Japanese banks. On average, city banks exhibited diseconomies of scale/density; trust banks exhibited constant returns to scale and increasing returns to density, and regional banks exhibited increasing returns to scale and density. This suggests that unions between city banks and either regional banks or trust banks may have been more likely to yield cost‐efficiencies, and raises questions concerning the efficiency motivations of the mega‐bank mergers. The findings further indicate that banks with higher sales were more likely to have exploited scale/density efficiencies, and that banks with higher net incomes were more likely to be in the increasing returns region.

Originality/value

This paper suggests that the mega‐merger wave in Japan in the late 1990s may not have been motivated by a desire for greater efficiencies through utilization of under‐utilized branch networks. Unlike other studies, this analysis differentiates between economies of scale and economies of density.

Details

International Journal of Managerial Finance, vol. 2 no. 1
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 1 January 2004

NECMI K AVKIRAN

Data envelopment analysis (DEA) and window analysis are used to follow the changes in Australian trading banks' pure technical efficiency, scale efficiency, and the nature…

Abstract

Data envelopment analysis (DEA) and window analysis are used to follow the changes in Australian trading banks' pure technical efficiency, scale efficiency, and the nature of returns to scale. The main findings indicate declining average efficiency scores until 1991, followed by a steady rise thereafter. Pure technical inefficiency emerges as a greater source of inefficiency than scale inefficiency. Overall, regional banks exhibit increasing returns to scale and major trading banks exhibit decreasing returns to scale. Also worthy of note is the mixed size of banks operating at optimal returns to scale.

Details

Studies in Economics and Finance, vol. 22 no. 1
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 1 August 1999

Erik S. Reinert

This paper attempts to trace and describe the role played by the government sector – the state – in promoting economic growth in Western societies since the Renaissance…

Abstract

This paper attempts to trace and describe the role played by the government sector – the state – in promoting economic growth in Western societies since the Renaissance. One important conclusion is that the antagonism between state and market, which has characterised the twentieth century, is a relatively new phenomenon. Since the Renaissance one very important task of the state has been to create well‐functioning markets by providing a legal framework, standards, credit, physical infrastructure and – if necessary – to function temporarily as an entrepreneur of last resort. Early economists were acutely aware that national markets did not occur spontaneously, and they used “modern” ideas like synergies, increasing returns, and innovation theory when arguing for the right kind of government policy. In fact, mercantilist economics saw it as a main task to extend the synergetic economic effects observed within cities to the territory of a nation‐state. The paper argues that the classical Anglo‐Saxon tradition in economics – fundamentally focused on barter and distribution, rather than on production and knowledge – systematically fails to grasp these wider issues in economic development, and it brings in and discusses the role played by the state in alternative traditions of non‐equilibrium economics.

Details

Journal of Economic Studies, vol. 26 no. 4/5
Type: Research Article
ISSN: 0144-3585

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Book part
Publication date: 27 October 2015

Joanne Jin Zhang, Yossi Lichtenstein and Jonathan Gander

Digital business models are often designed for rapid growth, and some relatively young companies have indeed achieved global scale. However, despite the visibility and…

Abstract

Digital business models are often designed for rapid growth, and some relatively young companies have indeed achieved global scale. However, despite the visibility and importance of this phenomenon, analysis of scale and scalability remains underdeveloped in management literature. When it is addressed, analysis of this phenomenon is often over-influenced by arguments about economies of scale in production and distribution. To redress this omission, this paper draws on economic, organization, and technology management literature to provide a detailed examination of the sources of scaling in digital businesses. We propose three mechanisms by which digital business models attempt to gain scale: engaging both non-paying users and paying customers; organizing customer engagement to allow self-customization; and orchestrating networked value chains, such as platforms or multi-sided business models. Scaling conditions are discussed, and propositions developed and illustrated with examples of big data entrepreneurial firms.

Details

Business Models and Modelling
Type: Book
ISBN: 978-1-78560-462-1

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Article
Publication date: 9 May 2016

Amit Sharma, Victor Eduardo Da Motta, Jeong-Gil Choi and Naomi S. Altman

Economic production analysis can provide critical perspectives on an industry’s performance. The purpose of this paper is to investigate the factor input intensity of…

Abstract

Purpose

Economic production analysis can provide critical perspectives on an industry’s performance. The purpose of this paper is to investigate the factor input intensity of hospitality and related industries, namely, accommodation, food service and amusement, gaming and recreation (AFAGR), compared to other service industries.

Design/methodology/approach

This paper compared AFAGR with other industries categorized as services by the North American Industry Classification System (NAICS). The NAICS code of up to four digits was used to collect data (US Census Bureau).

Findings

Results of this paper confirm extant literature that food service is more labor-intensive than other service industries; however, this was not true of accommodation and AGR industries. Similarly, while food service industry was relatively less intermediate input intensive than other service industries, accommodation and AGR were not. There were no significant differences between hospitality and other service industries (AFAGR) in their capital intensity. Another important finding was that while accommodation had constant results to scale, AGR had increasing returns to scale and food service industry was found to have decreasing returns to scale.

Research limitations/implications

This investigation only looked at the four-digit NAICS-coded industries. International differences could also be investigated in the future.

Practical implications

Based on theoretical arguments, high labor intensity together with low intermediate input in food service industry suggests that efficiencies could be gained in these businesses. This may also be evident by the decreasing returns to scale that this paper found for the food service industry. These comparisons could guide additional research about the causes, consequences and potential sources of improvement of efficiency of economic productivity in AFAGR. Managers in AFAGR would find it valuable to understand how they might be able to enhance economic output, particularly in the context of the role of labor. Furthermore, any changes in one economic input would have implications on other inputs and possibly on productivity.

Social implications

Any future recalibration of input intensity in hospitality industries could have both social and economic consequence.

Originality/value

This paper enhances our understanding of how hospitality industries use economic factors of production. Labor in AFAGR is viewed as a given. This study suggests that food service industry may need to reevaluate its labor productivity, the way it is measured and how it might affect efficiencies. Such understanding could better inform the sources and causes of economic efficiencies in AFAGR industries. Until now, this understanding has mostly been based on relatively scarce comparative systematic analysis.

Details

International Journal of Contemporary Hospitality Management, vol. 28 no. 5
Type: Research Article
ISSN: 0959-6119

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Article
Publication date: 1 June 1995

Erich W. Streissler

It is a common misunderstanding that nineteenth‐century Germaneconomics rejected Ricardo and his thought. However, Ricardo exercised astrong influence on German views on…

Abstract

It is a common misunderstanding that nineteenth‐century German economics rejected Ricardo and his thought. However, Ricardo exercised a strong influence on German views on production and distribution. In particular he influenced Wilhelm Roscher. Argues that Roscher in turn exercised a considerable influence on the work of Karl Marx. Analyses the aspects of Roscher′s work which were particularly influenced by Ricardo, and those where Roscher went beyond Ricardo, his notion of a macroeconomic production function; increasing returns to scale; and the role of small firms.

Details

Journal of Economic Studies, vol. 22 no. 3/4/5
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 1 June 2010

Mohammad Zakir Hossain and Khalid Said Al‐Amri

The main purpose of this paper is to select the most suitable production model for measuring the production process of some major manufacturing industries in Oman.

Abstract

Purpose

The main purpose of this paper is to select the most suitable production model for measuring the production process of some major manufacturing industries in Oman.

Design/methodology/approach

This empirical paper looks into an analytical justification to use Cobb‐Douglas (C‐D) production model in order to estimate and test the coefficients of the production inputs for each of the selected manufacturing industries using annual industrial statistical data over the period 1994 through 2007 published by Ministry of Commerce and Industry, Sultanate of Oman.

Findings

The results of the paper indicate that for most of the selected industries the C‐D function fits the data very well in terms of labor and capital elasticity, return to scale measurements, standard errors, economy of the industries, high value of R2 and reasonably good Durbin‐Watson statistics. The estimated results suggest that the manufacturing industries of Oman generally seem to indicate the case of increasing return to scale. Of the nine industries, seven exhibit increasing return to scale and only the rest two show decreasing return to scale. The paper finds no industry with constant return to scale.

Research limitations/implications

The paper could not consider a good number of manufacturing industries and a long period of time series data in the study because of lack of data availability.

Practical implications

Recently, businessmen as well as industrialists are very much concerned about the theory of firm in order to make correct decisions regarding what items, how much and how to produce them. All these decisions are directly related with the cost considerations and market situations where the firm is to be operated. In this regard, this paper should be helpful in suggesting the most suitable functional form of production process for the major manufacturing industries of developing countries like Oman.

Originality/value

The paper shows originality in substance and makes a unique contribution to the literature on industrial economics in Oman.

Details

Education, Business and Society: Contemporary Middle Eastern Issues, vol. 3 no. 2
Type: Research Article
ISSN: 1753-7983

Keywords

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