Returns to Scale and Productivity in the Macroeconomy (Anthony Savagar joint with Joel Kariel)

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Speaker: Anthony Savagar (Kent)

Abstract:  We investigate the puzzle of rising returns to scale but stagnating productivity in several advanced economies. To do this, we develop a model of heterogeneous firms with endogenous returns to scale. We show that growing returns to scale driven by span of control, rather than fixed costs, reduces productivity because it weakens firm selection. Our empirical analysis confirms that productivity and returns to scale are negatively related, and in aggregate returns to scale have increased whilst productivity has weakened. This suggests an important role in recent market structure discussions for technologies that have broadened span of control.

Paper: Returns to Scale and Productivity in the Macroeconomy

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