Staff Report 152

In Search of Scale Effects in Trade and Growth

Patrick J. Kehoe | Stanford University, University College London, Federal Reserve Bank of Minneapolis
Timothy J. Kehoe | Consultant
David K. Backus

Revised July 1, 1992

We look for the scale effects predicted by some theories of trade and growth based on the dynamic returns to scale that arise from learning by doing, investment in human capital, or development of new products. We find little empirical evidence of a relation between the growth rate of GDP per capita and the measures of scale implied by the theory. Restricting attention to the manufacturing sector, however, we find a significant relation between the growth rate of output per worker and the relevant scale variables. We also find that growth rates are significantly related to measures of intra-industry trade.

Published In: Journal of Economic Theory (Vol. 58, No. 2, December 1992, pp. 377-409)

Download Paper (pdf)