Returns to Scale for EU Regions – evidence from the spatial panel model

• Main Author: Alicja Anna Olejnik
• Format: Article
• Language: English
• Published: Lodz University Press 2017-09-01
• Series: Acta Universitatis Lodziensis. Folia Oeconomica
• Subjects: increasing returns to scale; productivity growth; Verdoorn’s law; spatial panel
• Online Access: https://czasopisma.uni.lodz.pl/foe/article/view/805

Recent findings emphasise the importance of localised returns to scale for the regional growth as well as for the agglomeration processes. However, it is still not well established whether returns to scale are constant or increasing, and to what extent. Therefore, in this study we apply specification which describes the productivity growth with the growth of output through the Verdoorn’s law. This study aims to provide some new estimates of the degree of returns to scale for EU regions. Our findings show that the hypothesis of increasing returns to scale is still valid in today’s EU economy. To test the hypothesis, we have employed the Multidimensional Spatial Panel Durbin Model with Spatial Fixed Effects. The research is conducted for 261 regions of the EU 28. The paper concludes that increasing returns to scale in EU regions are substantial.