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

Millemaci, Emanuele; Ofria, Ferdinando

doi:10.2139/ssrn.2192520

Cited by 8 publications

(15 citation statements)

References 52 publications

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“…The results also show that growth in industrial output will lead to increased labor productivity, in this sector, but with an elasticity coefficient equal to 0.81 for the whole and 0.616 for the industry sector. These results contradict the findings of several studies, specifically Romero and McCombie (2016) and Millemaci and Ofria (2014), whose studies supported the hypothesis of increasing returns to scale in manufacturing sector in developed countries.…”

Section: Results and Recommendationscontrasting

confidence: 99%

“…Millemaci and Ofria (2014) examined whether the degree of increasing returns to scale varies through time, estimating Kaldor–Verdoorn’s law for different periods through 1973–2006 for ten EU countries. They suggested that the Verdoorn coefficient has been stable during the period for the countries individually considered.…”

Section: Theoretical Framework and Literature Reviewmentioning

confidence: 99%

“…Romero and McCombie (2016) investigated the existence of different degrees of returns to scale in low-tech and high-tech manufacturing industries in 11 OECD countries, and examined whether the degrees of returns to scale change through time. The tests employ modern panel data techniques not previously explored, using the specification proposed by Millemaci and Ofria (2014). The investigation suggests that high-tech manufacturing industries exhibit larger degrees of returns to scale than low-tech manufacturing industries.…”

Section: Theoretical Framework and Literature Reviewmentioning

confidence: 99%

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The relationship between manufacturing production and economic growth in the Kingdom of Saudi Arabia

Almosabbeh

Almoree

2018

JES

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Purpose The purpose of this paper is to examine the long-term relationship between the performance of the manufacturing sector and economic growth in Saudi Arabia. It does so by testing Kaldor–Verdoorn and Thirlwall’s laws. Design/methodology/approach The authors used data for the period 1980–2014 from databases of the World Bank, the Saudi Arabian Monetary Agency, the Penn World Table (PWT8) and the five-year plan of the Ministry of Planning and National Economy of Saudi Arabia. The authors used the bound test for the cointegration approach, which allowed them to test the two hypotheses in the long run, after examining the stability of the time series and ensuring the rank of its stability. Findings The results that emerged from the analysis show that Kaldor’s law is applicable to the data on the KSA, but with decreasing returns to scale, with coefficient equal 0.83. Verdoorn’s law is also applicable at both macro and sectoral levels with elasticity coefficient equal to 0.81 and 0.616, respectively, also with decreasing returns to scale. For Thirlwall’s model, the results show that the relationship was reverse, contrary to what expected, with a significant elasticity coefficient of 0.599. Social implications This study recommends that policy makers in the Kingdom of Saudi Arabia focus on the industrial sector because of its impact on productivity, social returns and other sectors of the economy. Originality/value One of the important aspects of this paper is that it tests both Kaldor–Verdoorn’s and Thirlwall’s laws in the case of countries that depend on oil exports for growth and where the contribution of industrial output to GDP, in Saudi Arabia, is relatively low, at about 13 percent, across the period 1970–2013, and about 16.8 percent between 2000 and 2013 (see Figure 1). Since there have been few studies on this subject, the authors used data from Saudi Arabia to provide evidence of the importance of diversifying the economy by increasing the contribution of manufacturing to GDP to ensure increased productivity and to promote economic growth.

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Section: Results and Recommendationscontrasting

confidence: 99%

Section: Theoretical Framework and Literature Reviewmentioning

confidence: 99%

Section: Theoretical Framework and Literature Reviewmentioning

confidence: 99%

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The relationship between manufacturing production and economic growth in the Kingdom of Saudi Arabia

Almosabbeh

Almoree

2018

JES

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“…Jiménez-Rodríguez 2008;Sánchez 2005, 2009) and it is commonly used in the works on the Smith-Kaldor-Verdoorn law (e.g. Millemaci and Ofria 2014). While oil price affects the value added, labour productivity is unlikely to affect the oil price directly.…”

Section: Data and Methodological Issues With The Benchmark Modelmentioning

confidence: 99%

Productivity growth, Smith effects and Ricardo effects in Euro Area's manufacturing industries

et al. 2019

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“…In the shadows of exogenous growth theory, there have remained economists who have studied the ways that activist policy can have long-term effects by raising productivity (Dixon and Thirlwall 1975; Millemaci and Ofria 2012; Verdoorn 2002). Writing (in Italian) shortly after the Great Depression and World War II, the Dutch economist Petrus Verdoorn estimated that productivity growth accounts for nearly half of increased output during booms.…”

Section: Direct Effects Of Demand On Productivitymentioning

confidence: 99%

A Future for Growth?

Friedman

2017

Review of Radical Political Economics

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Macroeconomics has been constrained by assumptions that the economy tends toward full employment, and longterm growth depends on exogenous factors, productivity, and labor force growth. This discounts effects of demand on the labor force participation and immigration, and on investment and productivity growth. Expansionary fiscal policy and greater effective demand could induce reverse (or benevolent) hysteresis where capacity grows faster with higher employment, investment, and productivity.

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

Abstract: We are thankful to Mario Centorrino, Matteo Lanzafame and to the session participants at the AISSEC conference (Perugia, 2009) for helpful comments and suggestions. The usual disclaimer applies.

Cited by 8 publications

References 52 publications

The relationship between manufacturing production and economic growth in the Kingdom of Saudi Arabia

The relationship between manufacturing production and economic growth in the Kingdom of Saudi Arabia

Productivity growth, Smith effects and Ricardo effects in Euro Area's manufacturing industries

A Future for Growth?

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