INCREASING RETURNS AND ECONOMIC-GROWTH - SOME EVIDENCE FOR MANUFACTURING FROM THE EUROPEAN-UNION REGIONS

This paper examines the role of increasing returns to scale in empiric ally explaining economic growth rate disparities. It presents estimate s for the Verdoorn law using data for 178 European Union regions over 1979-89. The law includes a spatially lagged productivity variable and is estimated by maximum likelihood methods. We estimate the contribut ion of the spatial diffusion of technical change and also investigate the relationship between the static and dynamic law. The results, sugg esting large increasing returns to scale, are compared with the estima tes of a Barro-Sala-i-Martin neoclassical convergence model, indicatin g significant unconditional convergence. We discuss the conflicting re sults of these two approaches.