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We use the Vietnam Living Standards Surveys from 1993 and 1998 to examine inequality in welfare between urban and rural areas in Vietnam. Real per capita household consumption expenditure (RPCE) is our measure of welfare. We apply a quantile regression decomposition technique to analyze the difference between the urban and rural distributions of log RPCE. In the earlier survey, the urban-rural gap is primarily due to differences in covariates such as education, ethnicity, and age. This is true across the entire distribution. In the later survey, this is true only for lowest quantiles. For the rest of the distribution, the gap is primarily due to differences in returns to covariates between the urban and rural sectors.

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This study exploits plant-level panel data from Chile to provide new evidence on the empirical significance of scale economies in manufacturing sectors. Particular emphasis is given to econometric problems induced by the presence of unobservable plant heterogeneity, measurement error, and selectivity. An analysis of the results suggests that estimates based on generalized method of moments (GMM) estimators that pool long differences (which eliminate heterogeneity effects) are robust to measurement error in the capital stock, heteroscedasticity, and selectivity. Returns to scale for three-digit industries are fairly evenly distributed over the plausible range of 0.8 to 1.2, and none is statistically significantly different from constant returns. Similar results hold for the four-digit industries for which sufficient data are available. Although general expansion of the manufacturing sector cannot be expected to yield strong plant-level scale economies, our results do not rule out scale economies from other sources, such as the spreading of start-up costs and external returns to scale. Finally, the analysis has generated severalfindings of methodological interest, including the notion that Stigler's survival test may indeed be useful as a quick first pass on the empirical importance of returns to scale. Domestic markets for industrial products are often small in developing countries. Accordingly, scale economies in manufacturing sectors can critically influence market structures, growth prospects, and trading patterns. Although the potential importance of these effects has long been recognized by students of development, there has been very little convincing research on their empirical significance. Berry (1992) and Bhagwati (1988) share the concern of Rodrik (1988), who notes that "there is practically no direct evidence on the importance of scale economies in specific industrial sectors of the developing countries." In M. Daniel Westbrook and James R. Tybout are in the Department of Economics at Georgetown University. This article was prepared for the World Bank research project "Industrial Competition, Productive Efficiency, and Their Relation to Trade Regimes" RPO 674-46. The authors are grateful to John Cuddington, Zvi Griliches, three anonymous referees, and participants in workshops at the National Bureau of Economic Research and at Georgetown for their comments.

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