Returns to scale in Canadian manufacturing: an interprovincial comparison

In this paper is measured the degree of returns to scale at the two-digit Standard Industrial Classification (SIG) in Canadian manufacturing employing both gross output and value-added data. Using a model developed by Caballero and Lyons (1989, 1990), the study distinguishes between internal and external returns to scale. The Caballero and Lyons model is extended by disaggregation to the provincial level in order to measure the returns to scale of geographic (provincial) concentration. The empirical results suggest that in Canada there are increasing returns that are primarily national rather than internal to the province or the industry.