FEEM working papers "Note di lavoro" series
2012 .092

Kaldor-Verdoorn's Law and Increasing Returns to Scale: A Comparison Across Developed Countries


Authors: Emanuele Millemaci, Ferdinando Ofria
Series: Economy and Society
Editor: Giuseppe Sammarco
Keywords: Increasing Returns, Kaldor-Verdoorn Law, Productivity Growth, Manufacturing Sector
JEL n.: C32, O47, O57

Abstract

The objective of this study is to investigate the validity of the Kaldor-Verdoorn’s Law in explaining the long run determinants of the labor productivity growth for the manufacturing sector of some developed economies (Western European Countries, Australia, Canada, Japan and United States). We consider the period 1973-2006 using data provided by the European Commission - Economics and Financial Affairs. Our findings suggest that the law is valid for the manufacturing as countries show increasing returns to scale. Capital growth and labor cost growth do not appear important in explaining productivity growth. The estimated Verdoorn coefficients are found to be substantially stable throughout the period.

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