Verdoorn's Law and Increasing Returns to Scale in the UK Regions, 1968-91: Some New Estimates Based on the Cointegration Approach.

The Johansen approach to estimating long-run cointegration vectors is used with 1968-91 U.K. region by industry data to estimate returns to scale. Thus, this approach has the advantages of including a measure of capital, it overcomes the simultaneity problems associated with the single-equation Verdoorn law, and it involves estimating a correctly specified dynamic model in which is embedded the long-run solutions(s). The results indicate that there is substantial evidence that increasing returns are the norm for the majority of manufacturing industries in British regions. Copyright 1998 by Royal Economic Society.