Scale Effect Versus Young’s ‘Acceleration Principle’: The Empirical Issues

This paper maintains that the conceptualization of a large firm that is based on the realization of increasing returns to scale phenomenon, which is based on pecuniary external economies created by other such large firms, is problematic. It, by design, is dependent on the external increase in the size of the market. An alternative is the Youngian conception of the 'increasing returns' phenomenon that provides a better policy focus. It discusses the conditions under which investment by a 'large firm' in an industry that is productive (i.e. embodies technological improvement) creates external economies, and forms the basis of further investments that are more productive. The Youngian external economies-based 'acceleration' principle propagates in a cumulative way, permitting in turn continuous advanced growth.