An empirical study on the returns to scale of supply structure in China’s economic growth: 1993–2015

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.

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Kaldor-Verdoorn's law and increasing returns to scale

Journal of Economic Studies ◽

10.1108/jes-02-2012-0026 ◽

2014 ◽

Vol 41 (1) ◽

pp. 140-162 ◽

Cited By ~ 17

Author(s):

Emanuele Millemaci ◽

Ferdinando Ofria

Keyword(s):

Productivity Growth ◽

Economies Of Scale ◽

Returns To Scale ◽

Labor Cost ◽

Increasing Returns ◽

Content Type ◽

Increasing Returns To Scale ◽

Capital Growth ◽

Cost Growth ◽

Verdoorn's Law

Purpose – The aim of this study is to investigate the validity of the Kaldor-Verdoorn's law in explaining the long-run determinants of the labor productivity growth for the manufacturing sector of some developed economies (Western European Countries, Australia, Canada, Japan and the USA). Design/methodology/approach – The authors consider the period 1973-2006 using data provided by the European Commission – Economics and Financial Affairs. The method is instrumental variable. The robustness of estimates is checked by means of the Chow and the CUSUM and CUSUMQ tests. The authors consider the traditional specification of the dynamic Verdoorn law and the one which also includes investment to output ratio (I/Y), as a proxy of the capital growth rate, and the average labor cost growth, as a proxy of supply factors. Findings – The findings suggest that the law is valid for the manufacturing as countries show increasing returns to scale. Capital growth and labor cost growth do not appear important in explaining productivity growth. The estimated Verdoorn coefficients are found to be substantially stable throughout the period. Originality/value – The authors consider the most recent years, which has been characterized by a constant decline in the average GDP growth rates; a productivity growth decline; the long-term reduction in the manufacturing share of total employment. The authors examine the importance of alternative hypotheses such as those related to the existence of supply constraints. The authors check the stability of the KVL throughout the period under the consideration and across countries. The authors evaluate whether, in the case of the developed countries, economies of scale are significant.

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Internal Increasing Returns to Scale and Economic Growth

10.3386/w12999 ◽

2007 ◽

Author(s):

John List ◽

Haiwen Zhou

Keyword(s):

Economic Growth ◽

Returns To Scale ◽

Increasing Returns ◽

Increasing Returns To Scale

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Differences in increasing returns between technological sectors

Journal of Economic Studies ◽

10.1108/jes-03-2015-0045 ◽

2016 ◽

Vol 43 (5) ◽

pp. 863-878 ◽

Cited By ~ 12

Author(s):

João P. Romero ◽

John S.L. McCombie

Keyword(s):

Returns To Scale ◽

Manufacturing Industries ◽

Increasing Returns ◽

Estimation Methods ◽

High Tech ◽

System Gmm ◽

Content Type ◽

Increasing Returns To Scale ◽

New Evidence ◽

Verdoorn's Law

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.

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