External economies of scale in the Lancashire cotton industry, 1900–1950

Abstract

This article provides three types of evidence for external economies of scale in the Lancashire cotton industry. Anglo‐American productivity differences are used to demon‐strate external economies at the industry level. Econometric evidence of dynamic (Marshall‐Arrow‐Romer) external economies of localization in spinning and weaving is provided using individual earnings data. A case study of a merchant firm demonstrates the build‐up of dynamic (Jacobs) externalities of urbanization. It is argued that the persistence of a large merchant community generating external economies of scale helped to delay Britain's loss of comparative advantage to low wage producers.