VERDOORNS LAW AND INCREASING RETURNS TO SCALE IN THE UK REGIONS, 1968-91 - SOME NEW ESTIMATES BASED ON THE COINTEGRATION APPROACH

The Johansen approach to estimating long-run cointegration vectors is used with 1968-91 UK region by industry data to estimate returns to sc ale. Thus, this approach has the advantages of including a measure of capital, it overcomes the simultaneity problems associated with the si ngle-equation Verdoorn law, and it involves estimating a correctly spe cified dynamic model in which is embedded the long-run solution(s). Th e results indicate that there is substantial evidence that increasing returns are the norm for the majority of manufacturing industries in B ritish regions.