Aggregate returns to scale in Greek manufacturing

Abstract

This paper takes an imperfect competition model of the economy in order to investigate for retuns to scale in Greek manufacturing and examines, through a small-scale macroeconomic model, the implication of estimates. For this purpose a price, wage and demand for output equations are estimated, using annual data for the period 1954–94. Prices come through the profits maximization process and depend on wage, capital rental, demand and a number of other variables denoing technology and market competition. Results are clearly in favour of increasing returns to scale hypothesis, although alternative explanations for the negative demand effect on prices cannot be excluded.