Returns to Scale Behavior and Manufacturing Agglomeration Economies in U.S. Urban Areas

Abstract

The returns to scale (RTS) parameter of urban production functions often has been used to test for the existence of agglomeration economies in urban areas. The production function has been viewed as a convenient device for bridging the gap between the theory of agglomeration and its measurement. Though the studies in this area recently have become much more refined, additional research has been needed in some of the more basic methodological and procedural issues connected with the empirical implementation of the production function approach. The principal objective of this study is to obtain a more accurate estimate ofRTS for the manufacturing sector of urban agglomerations in the U.S. The conclusion is that the economies of agglomeration may be more complex than originally thought and it may be fruitful to examine more closely the underlying factors involved.