Econometric estimates of scale economies in Canadian manufacturing

Abstract

An econometric analysis of cost-scale relationships in 147 Canadian manufacturing industries using plant-level data for 1979 is presented. The results suggest that there are increasing returns to scale in a majority of industries, but also that a significant fraction of industries are characterized by constant returns. The cost penalty associated with sub-optimal scale amounts to roughly 4% of the total manufacturing costs. Finally, although wage rates and product diversity have no significant impact on unit cost in most industries, some industries are affected when the usual cross-sectional assumption of constant wage rates and product diversity is relaxed.