Saturday, October 8, 2016

Kaldor’s Growth Laws and Verdoorn’s Law: An Overview and Bibliography

Verdoorn’s law and Kaldor’s growth laws are important theories in Post Keynesian economics.

Nicholas Kaldor’s foundational work on these laws can be found in these works:
Kaldor, Nicholas. 1966. Causes of Slow Rate of Economic Growth of the United Kingdom: An Inaugural Lecture. Cambridge University Press, London.

Kaldor, Nicholas. 1967. Strategic Factors in Economic Development. Ithaca, New York.
In brief, Kaldor’s growth laws and Verdoorn’s Law can be summarised as three empirical generalisations:
“1. The growth of the GDP is positively related to the growth of the manufacturing sector. This is perhaps better stated in terms of GDP growth being faster the greater the excess of growth of industrial growth relative to GDP growth: that is when the share of industry in GDP is rising.

2. The productivity of the manufacturing sector is positively related the growth of the manufacturing sector (this is also known as Verdoorn’s Law). Here the argument is that there are increasing returns to scale in manufacturing. These may be static—where the larger the size of the sector the lower the average costs—or dynamic via the induced effect that output growth has on capital accumulation and technical progress. Learning by doing effects are also likely to be important.

3. The productivity of the non-manufacturing sector is positively related to the growth of the manufacturing sector. This last law is the least intuitive and is based on the argument that the non-industrial sector has diminishing returns to scale. As resources are moved out the average productivity of those that remain will rise.”
https://en.wikipedia.org/wiki/Kaldor%27s_growth_laws
Verdoorn’s Law is also known as the Kaldor–Verdoorn law.

Law 3 can also be described in the following terms:
3. As manufacturing output rises, labour flows from the diminishing or constant returns to scale sectors (like agriculture) to the manufacturing sector, a process which also tends to increase productivity in non-manufacturing sectors, so that the development of the manufacturing sector tends to increase the rate of productivity growth in the whole economy (Thirlwall 1983: 346).
There was an important symposium on “Kaldor’s Growth Laws” in the Journal of Post Keynesian Economics (vol. 5, no. 3: 1983), with contributions from Thirlwall 1983a; Thirlwall 1983b; Blitch 1983; McCombie and De Ridder 1983; Gomulka 1983; Chatterji and Wickens 1983; and McCombie 1983.

An interesting observation related to this is: has the low-wage, neoliberal economy the West has increasingly had since the 1980s by (1) offshoring of manufacturing to the Third World and (2) mass immigration and open borders in the West negatively impacted productivity growth and reduced technological development?

The bibliography is below:
Bibliography
Overviews
Blankenburg, Stephanie and Gabriel Palma. 2012. “Economic Development,” in J. E. King (ed.), The Elgar Companion to Post Keynesian Economics (2nd edn.). Edward Elgar, Cheltenham. 138–143.

Lavoie, Marc. 2014. Post-Keynesian Economics: New Foundations. Edward Elgar, Cheltenham. pp. 428–430.

Advanced
Alexiadis, Stilianos and Dimitrios Tsagdis. 2006. “Reassessing the Validity of Verdoorn’s Law under Conditions of Spatial Dependence: A Case Study of the Greek Regions,” Journal of Post Keynesian Economics 29.1: 149–175.

Blitch, Charles P. 1983. “Allyn Young on Increasing Returns,” Journal of Post Keynesian Economics 5.3: 359–372.

Casillas, Luis R. 1993–1994. “Kaldor versus Prebisch on Employment and Industrialization,” Journal of Post Keynesian Economics 16.2: 269–288.

Chatterji, M. and Michael R. Wickens. 1983. “Verdoorn’s Law and Kaldor’s Law: A Revisionist Interpretation?,” Journal of Post Keynesian Economics 5.3: 397–413.

Felipe, Jesus. 1998. “The Role of the Manufacturing Sector in Southeast Asian Development: A Test of Kaldor’s First Law,” Journal of Post Keynesian Economics 20.3: 463–485.

Gomulka, Stanislaw. 1983. “Industrialization and the Rate of Growth: Eastern Europe 1955–75,” Journal of Post Keynesian Economics 5.3: 388–396.

Hildreth, Andrew. 1988–1989. “The Ambiguity of Verdoorn’s Law: A Case Study of the British Regions,” Journal of Post Keynesian Economics 11.2: 279–294.

Kaldor, Nicholas. 1966. Causes of Slow Rate of Economic Growth of the United Kingdom: An Inaugural Lecture. Cambridge University Press, London.

Kaldor, Nicholas, 1968. “Productivity and Growth in Manufacturing Industry: A Reply,” Economica 35.140: 385–391.

Kaldor, Nicholas. 1975. “Economic Growth and the Verdoorn Law: A Comment on Mr Rowthorn’s Article,” Economic Journal 85.340: 891–896.

Kaldor, Nicholas. 1967. Strategic Factors in Economic Development. Ithaca, New York.

Kaldor, Nicholas. 1978. Further Essays on Economic Theory. Duckworth, London.

McCombie, John S. L. 1983. “Kaldor’s Laws in Retrospect,” Journal of Post Keynesian Economics 5.3: 414–429.

McCombie, John S. L. 1998–1999. “In Defense of Kaldor: A Comment on Casillas’s ‘Kaldor versus Prebisch on Employment and Industrialization,’” Journal of Post Keynesian Economics 21.2: 353–361.

McCombie, John S. L. and John R. De Ridder. 1983. “Increasing Returns, Productivity, and Output Growth: The Case of the United States,” Journal of Post Keynesian Economics 5.3: 373–387.

Michl, Thomas R. 1985. “International Comparisons of Productivity Growth: Verdoorn’s Law Revisited,” Journal of Post Keynesian Economics 7.4: 474–492.

Parikh, A. 1978. “Differences in Growth Rates and Kaldor’s Laws,” Economica 45: 83–91.

Rima, Ingrid H. 2004. “China’s Trade Reform: Verdoorn’s Law Married to Adam Smith’s ‘Vent for Surplus’ Principle,” Journal of Post Keynesian Economics 26.4: 729–774.

Rima, Ingrid H. 2004. “Increasing Returns, New Growth Theory, and the Classicals,” Journal of Post Keynesian Economics 27.1: 171–184.

Rowthorn, R. E. 1975. “What remains of Kaldor’s Law?,” Economic Journal 85: 10–19.

Skott, Peter. 1999. “Kaldor’s Growth Laws and the Principle of Cumulative Causation,” in M. Setterfield (ed.), Growth, Employment and Inflation: Essays in Honour of John Cornwall. St Martin’s Press, New York. 166–179.

Skott, Peter and Paul Auerbach. 1995. “Cumulative Causation and the ‘New’ Theories of Economic Growth,” Journal of Post Keynesian Economics 17.3: 381–402.

Thirlwall, A. P. 1983a. “A Plain Man’s Guide to Kaldor’s Growth Laws,” Journal of Post Keynesian Economics 5.3: 345–358.

Thirlwall, A. P. 1983b. “Introduction” (Symposium: Kaldor’s Growth Laws), Journal of Post Keynesian Economics 5.3: 341–344.

Thirlwall, A. P. 1997. “Reflections on the Concept of Balance-of-Payments-Constrained Growth,” Journal of Post Keynesian Economics 19.3: 377–385.

Verdoorn, Petrus J. 1949. “Fattori che Regolano lo Sviluppo della Produttività del Lavoro,” L’Industria 1: 3–11.

Verdoorn, Petrus J. 1980. “Verdoorn’s Law in Retrospect: A Comment,” The Economic Journal 90: 382–385.

Verdoorn, Petrus J. 2002 [1949]. “Factors that Determine the Growth of Labour Productivity,” in John McCombie, Maurizio Pugno, and Bruno Soro (eds.), Productivity Growth and Economic Performance. Essays on Verdoorn’s Law. Palgrave Macmillan, Basingstoke, UK. 28–36. [translation of Verdoorn 1949].

Whiteman, John L. 1987. “Productivity and Growth in Australian Manufacturing Industry,” Journal of Post Keynesian Economics 9.4: 576–592.

Wolfe, J. N. 1968. “Productivity and Growth in Manufacturing Industry: Some Reflections on Professor Kaldor’s Inaugural Lecture,” Economica 35.138: 117–126.

Young, Allyn. 1928. “Increasing Returns and Economic Progress,” Economic Journal 38: 527–542.
Realist Left
Realist Left on Facebook
Realist Left on Twitter @realistleft
Realist Left on Reddit
Realist Left Blog
Realist Left on YouTube
Lord Keynes on Facebook
Social Democracy for the 21st Century: A Realist Alternative to the Modern Left

Alt Left on the Internet:
Alternative Left on Facebook
Alt-Left on Google+
Samizdat Broadcasts YouTube Channel
Samizdat: For the Freedom Loving Leftist

I’m on Twitter:
Lord Keynes @Lord_Keynes2
https://twitter.com/Lord_Keynes2

1 comment:

  1. Verdoorn's law and Kaldor's variant on it is perhaps one of the most important ideas concerning today's debate with "Secular Stagnation" and falling productivity.

    I know Matias Vernengo has done some work on it, showing that it and Okun's Law holds up, but it's behind a paywall.

    http://rrp.sagepub.com/content/40/3/237.abstract

    I'm actually unsure of how much the other two laws hold up in present, with larger degrees of public and private sector debt and non-manufacturing output replacing what used to be a wage-led economy. It was probably more of an empirical proposition of the pre-neoliberal economies. But that's an introspective conversation for later.

    ReplyDelete