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Returns to Scale in U.S. Production, Redux

Mumtaz Ahmad, John Fernald () and Hashmat Khan ()

No 19-07, Carleton Economic Papers from Carleton University, Department of Economics

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.

Keywords: Returns to scale; profit rates; markups (search for similar items in EconPapers)
JEL-codes: E22 E32 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2019-09-09
New Economics Papers: this item is included in nep-eff, nep-ind and nep-mac
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Published: Carleton Economic Papers

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Handle: RePEc:car:carecp:19-07