Marshall's scale economies

Using panel data this paper estimates plant level production functions for machinery and high-tech industries that allow for scale externalities from other plants in the same industry locally and from the scale or diversity of local economic activity outside the own industry. The paper finds that the count of other own industry plants. representing a count of local information spillover sources, has strong productivity effects in high tech but not machinery industries. Single plant firms both benefit more from and generate greater external benefits than corporate plants, given their greater reliance on external environments. On dynamic externalities, high-tech single plant firms benefit also from the scale of past own industry activity. I find little evidence of economies from the diversity or scale of local economic activity outside the own industry. (C) 2002 Elsevier Science (USA). All rights reserved.