The development of the theory of increasing returns
Division of labor and specialization
Adam Smith, the pioneer of the theory of increasing returns, explained the process of increasing returns from the perspective of enterprises and put forward the theorem that the division of labor is limited by the scope of the market, that is, the division of labor in productivity is the main reason for the growth of wealth, and the new division of labor depends on the expansion of the market. The combination of the two forms a self-sustained growth theory by constantly introducing a new division of labor.
Younger inherited Smith's thought of division of labor, pointed out that the increase of compensation was not caused by the scale of factories or industrial parts, and explained the mechanism of scale compensation with the concepts of division of labor and circuitous production.
Marx attributed the mechanism of increasing returns based on division of labor to the mutual accumulation of laborers, means of production and labor and means of production, that is, the savings generated by cooperation, the scope economy generated by the expansion of collective power and means of production, the increase of labor complexity generated by the accumulation of labor and means of production and the continuous improvement of means of production.
Shufa Qian (2003) thinks that there is a positive feedback mechanism between the deepening of division of labor, the evolution of industrial organization and the scale income of industry or market.
Xia Rongpo (2008) based on Smith's theory of division of labor, discussed the dynamic mechanism of increasing returns in the state of spatial organization of industrial agglomeration. The spatial organization system of industrial agglomeration can promote the critical point of innovation in the dynamic income and reward increasing mechanism through perfect internal organization and information system, so as to realize the continuous progress of technology and the continuous evolution of division of labor, and then complete the positive feedback effect of the dynamic income and reward increasing mechanism.
External saving factor
Marshall explained the mechanism of increasing returns with external economy under the framework of neoclassical equilibrium. In Marshall's view, increasing returns are caused by external economy. In this case, the increase in return stems from the spillover effect between enterprises in the same industry, while the market price and competition mechanism are still effective in other cases. Therefore, increasing returns and perfect competition are compatible, and the growth of external economy is the main source of increasing returns.
From the perspective of external economy, the sources of increasing returns include knowledge, human capital investment and scientific and technological innovation.
Arrow( 1962)' s "learning by doing" model puts the process of knowledge acquisition by people engaged in production into the model. It is a variant of the research and development model. He derived a production function with increasing returns to scale from the income production function of Cobb-Douglas conventional model of ordinary labor and capital. The externality explained by Lucas (1988) model is the spillover effect of human capital. Nelson and Pack( 1999) pointed out that learning by doing plays an important and positive role in the accumulation of human capital when developing countries attract foreign advanced technology.
Romer (1990) integrated Romer (1986) and Lucas model. He divided knowledge into two categories: human capital, which is a "competitive product"; The second is technology, which is a "non-competitive product". These two characteristics of knowledge mean that there are two sources of increasing returns to scale: specialization (increasing the number of products) and spillover effect of knowledge and technology.
Ran Wenjiang and Feng (2003) put forward two modes of technological innovation by analyzing the economic entropy and economic dissipation structure of production system. They think that technological innovation is the fundamental source of increasing economic benefits. Technological innovation starts with research and development, and finally realizes marketization, which is endless.
Shi Tao and Tao Aiping (2007) pointed out that the change of the relative proportion of two basic production factors-tangible production factors and intangible production factors in the total production factors directly determines the direction of salary change. The increasingly important position of intangible factors in production and its characteristics different from tangible factors make the law of increasing returns gradually become an important economic law in the era of knowledge economy.
Innovation evolution
According to Schumpeter, the core of economic development is not balance, but innovation. Innovation refers to the introduction of a new combination of production factors and production conditions into the production system. As the "soul" of economic activities, entrepreneurs' function is to realize innovation and introduce new combinations, so the increase of income comes from "industrial mutation" and "creative destruction" in the process of innovation.
Professor Schultz also studied the sources of increasing returns in his works, including eight categories, namely: division of labor, specialization, technological progress, accumulation of human capital, economic thoughts and knowledge, economic system, economic organization and restoration of economic balance.
An empirical study on the theory of increasing returns
Davis and Weinstein( 1999) tested the existence of increasing returns to scale by estimating the relationship between changes in expenditure and output in 13 OECD countries. Their estimated elasticity of output demand is 1.6, from which it is inferred that there is an obvious phenomenon of increasing returns to scale.
Paul and Siegel (1999) used the data of American industrial panel 1979- 1989 to prove that economies of scale generally exist in American industrial production.
Wang Junhui (2008) tested the scale returns of China 1978 to 2004, and then tested the scale returns of five OECD countries by using the panel data model. The research shows that the constant return to scale or increasing return to scale is often the research hypothesis of many theoretical models. However, the assumption that the scale income remains unchanged will lead to biased estimation of the actual contribution of factors. Therefore, the assumption of constant returns to scale is not suitable for analyzing modern economic development.
Wei Jie and Ren Baoping (20 1 1) used the data of 35 industrial sectors from 2000 to 2008 to calculate the scale returns in China's economic growth. Through the analysis of the influencing factors of increasing returns in China, it is found that division of labor and technological innovation are still the core elements at this stage. China's economic growth mode should turn to the mechanism driven by increasing income. The most fundamental thing is the formation of a benign interaction mechanism between division of labor and technological innovation.
Enlightenment of Increasing Return on China's Economic Development
(A) China's economic development should focus on the evolution of division of labor and the improvement of specialization. The theory of increasing returns shows that division of labor promotes economic growth, so increasing returns based on specialized division of labor is one of the optional paths to realize the national leapfrog strategy. At present, China's economy is divided into regions and markets, and the division of labor among departments is unclear. China should further break the division of regions and markets and the trade blockade between regions, make use of comparative advantages to carry out a reasonable division of labor between regions and industries, and constantly improve the level of division of labor and specialization in various fields, so as to build economic growth on the basis of increasing returns brought about by the continuous evolution of division of labor and realize long-term economic growth and leap-forward development.
(B) the accumulation of knowledge, the formation of human capital and technological innovation directly promote increasing returns. China's economic development depends not only on investment in machinery and equipment, but also on investment in intangible products such as education, training, human capital and technological innovation. We should constantly improve the education system, adjust the establishment of educational institutions, smoothly realize the economic and social benefits of human capital, actively encourage enterprises to train employees' skills, and encourage innovation. Enterprises should create a good environment for the growth of talents and strengthen the cultivation of talents' technology and management innovation ability. At the same time, the government must intensify the reform of medical care, education, social security and other systems to provide a guarantee mechanism for the improvement of national quality.
(C) China's economic development needs to pay attention to organizational change and institutional innovation. The reason of increasing returns is the evolution of division of labor, and technological innovation is closely related to institutional innovation, so institutional innovation plays an important role in the benign mechanism of increasing returns. Effective institutional arrangements can provide incentives and reduce transaction costs. It is necessary to reform the current inefficient and relatively rigid financing and investment system in China.
(Author: School of Economics, Anhui University)