Internal versus external economies in European industry

This paper presents estimates of indexes of internal returns to scale and external economies for two-digit manufacturing industries in the four European countries for which the requisite data are available in adequate length: West Germany, France, the U.K., and Belgium. Overall, we find very little evidence of internal increasing returns to scale: of the thirteen two-digit industries, only Rubber and Plastic Products, Agricultural and Industrial Machinery, and Mineral Products exhibit any significant internal increasing returns to scale, and for none of the three is internal increasing returns present in more than two of the four countries. Evidence of external economies, on the other hand, exists for all four countries, the effects of which are especially strong in France and Belgium.