Scale and learning effects in the cost structure of the cement industry of the Kingdom of Saudi Arabia

Abstract

In this paper we conduct an econometric study of the cost-scale relationships in 5 of the 8 cement companies in the Kingdom of Saudi Arabia using plant level data. Simple cost analysis is firstly conducted on a plant by plant basis and simplified cost functions are estimated on individual basis allowing for time and cross-sectional effects. Analysis and estimates allow us to compute valuable cost parameter estimates in the shapes of returns to scale and economies of scale. Panel estimation was also undertaken within fixed and random effects norms in order to induce more efficiency in the estimates. Results conform largely to those obtained in the case of individual regressions. They suggest that increasing returns to scale and significant economies of scale are predominant in the industry. We also allowed for the possibility of learning effects on costs through the estimation of augmented learning curve-cost functions. However, learning effects were found to be significantly operative in only one of the five cement plants in the sample