Increasing returns to scale and international diffusion of technology: An empirical study for Brazil (1976–2000)

SummaryThe aim of this paper is to explore and analyze empirical evidence regarding the effects of increasing returns to scale and international diffusion of technology on the Brazilian manufacturing industry. We will start from a Kaldorian-type theoretical model that provides not only the positive effects of scale but also of diffusion on industrial performance. We use vector auto regressive (VAR) to test the model. A VAR estimates the coefficients related to industrial output, labor productivity, exports, and the technological gap between the United States and Brazil. This technique also provides simulations for the short-term and long-term trajectories under exogenous shocks. The observations were conducted over a quarterly basis and the sampling period runs from the second half of 1976 to the second half of 2000. The conclusion highlights evidence of increasing returns on the Brazilian industry albeit with some structural limitations. Furthermore, the model also reveals the difficulties Brazil has had in catching up.