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Pecuniary External Economies, Economies of Scale and Increasing Returns: A Note of Dissent

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  • Roy Grieve

Abstract

In a recent paper Chandra & Sandilands (2006) put forward three contentious propositions concerning the 'mechanics' of the process of economic growth: these propositions are to the effect (1) that 'pecuniary external economies' should not be considered instances of market failure; (2) that economies of scale are of little importance in accounting for increasing returns, increasing returns being, it is alleged, attributable to other factors such as external economies or 'industrial differentiation'; and (3) that increasing returns are not 'sector specific', implying that particular sectors should not therefore be singled out for special promotion. This note investigates the arguments advanced by Chandra & Sandilands in support of these propositions, and finds that no convincing case is made for any of them. In particular, we stress the invalidity of Chandra & Sandilands' contention that increasing returns are largely independent of economies of scale.

Suggested Citation

  • Roy Grieve, 2010. "Pecuniary External Economies, Economies of Scale and Increasing Returns: A Note of Dissent," Review of Political Economy, Taylor & Francis Journals, vol. 22(1), pages 127-140.
    • Handle: RePEc:taf:revpoe:v:22:y:2010:i:1:p:127-140
    DOI: 10.1080/09538250903214883
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    References listed on IDEAS

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    1. Tibor Scitovsky, 1954. "Two Concepts of External Economies," Journal of Political Economy, University of Chicago Press, vol. 62(2), pages 143-143.
    2. Ramesh Chandra & Roger Sandilands, 2006. "The role of pecuniary external economies and economies of scale in the theory of increasing returns," Review of Political Economy, Taylor & Francis Journals, vol. 18(2), pages 193-208.
    3. Young, Allyn A., 1928. "Increasing Returns and Economic Progress," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 38, pages 527-542.
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