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What to Make of the Kaldor-Verdoorn Law?

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dc.contributor.authorBasu, Deepankar
dc.contributor.authorBudhiraja, Manya
dc.contributor.departmentDepartment of Economics, University of Massachusetts
dc.contributor.departmentDepartment of Economics, University of Massachusetts
dc.date2023-09-24T02:53:39.000
dc.date.accessioned2024-04-26T16:31:27Z
dc.date.available2020-04-30T00:00:00Z
dc.date.issued2020-01-01
dc.description.abstractThe Kaldor-Verdoorn law refers to a positive but less than one-for-one relationship between the growth rates of output and labor productivity, with causality running from the former to the latter. Empirical research has affirmed such a relationship and have found that the Kaldor-Verdoorn coefficient lies between 0 and 1. But the interpretation of this finding remains unclear. In this paper, we present a model to derive the Kaldor-Verdoorn law. Our results show that the Kaldor-Verdoorn coefficient is jointly determined by the elasticity of factor substitution, labor supply elasticity, the profit share and the increasing returns to scale (or demand-induced technical change) parameter. Hence, estimated Kaldor-Verdoorn coefficients cannot be used, on their own, to infer the presence of aggregate increasing re- turns to scale - other than in very special cases. We also show that, perhaps surprisingly, an economy without aggregate increasing returns to scale (or without any demand-induced technical progress) can generate a Kaldor-Verdoorn coefficient that lies between 0 and 1.
dc.identifier.doihttps://doi.org/10.7275/17572406
dc.identifier.urihttps://hdl.handle.net/20.500.14394/22268
dc.relation.ispartofUMass Amherst Economics Working Papers
dc.relation.urlhttps://scholarworks.umass.edu/cgi/viewcontent.cgi?article=1288&context=econ_workingpaper&unstamped=1
dc.rightsUMass Amherst Open Access Policy
dc.source.issue2020-03
dc.source.statuspublished
dc.subjectAggregate productivity
dc.subjectKaldor-Verdoorn coefficient
dc.subjectlabor supply elasticity
dc.subjectCES production function.
dc.subjectEconomics
dc.titleWhat to Make of the Kaldor-Verdoorn Law?
dc.typearticle
dc.typearticle
digcom.contributor.authorisAuthorOfPublication|email:dbasu@econs.umass.edu|institution:Department of Economics, University of Massachusetts|Basu, Deepankar
digcom.contributor.authorisAuthorOfPublication|email:mbudhiraja@umass.edu|institution:Department of Economics, University of Massachusetts|Budhiraja, Manya
digcom.date.embargo2020-04-30T00:00:00-07:00
digcom.identifierecon_workingpaper/286
digcom.identifier.contextkey17572406
digcom.identifier.submissionpathecon_workingpaper/286
dspace.entity.typePublication
relation.isAuthorOfPublication43cb2d2a-4fa2-45e3-a5a0-746b6aad6849
relation.isAuthorOfPublication.latestForDiscovery43cb2d2a-4fa2-45e3-a5a0-746b6aad6849
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