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Returns to Scale in U.S. Production, Redux

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Abstract

We estimate constant returns or slightly decreasing returns at the industry level in the private U.S. economy over the past 30 years, using two separate industry datasets. An intuitive identity linking returns to scale, the markup, and the profit rate, gives an implied markup of approximately 12 percent, smaller than the estimates in the recent literature ranging from 15–40 percent. Put differently, given our estimated profit rate, large markups imply strongly increasing returns, which are not evident in the aggregate data.These findings suggest that approximately constant returns to scale in the U.S. economy are consistent with a relatively small aggregate markup in the post-1990 period.

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  • Mumtaz Ahmad & John Fernald & Hashmat Khan, 2019. "Returns to Scale in U.S. Production, Redux," Carleton Economic Papers 19-07, Carleton University, Department of Economics.
    • Handle: RePEc:car:carecp:19-07
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    Cited by:

    1. Pavlov, Oscar, 2021. "Multi-product firms and increasing marginal costs," Journal of Economic Dynamics and Control, Elsevier, vol. 133(C).

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    More about this item

    Keywords

    Returns to scale; profit rates; markups;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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