Kaldor-Verdoorn's law and increasing returns to scale

2014 ◽  
Vol 41 (1) ◽  
pp. 140-162 ◽  
Author(s):  
Emanuele Millemaci ◽  
Ferdinando Ofria
Keyword(s):  
Productivity Growth ◽  
Economies Of Scale ◽  
Returns To Scale ◽  
Labor Cost ◽  
Increasing Returns ◽  
Content Type ◽  
Increasing Returns To Scale ◽  
Capital Growth ◽  
Cost Growth ◽  
Verdoorn's Law

Purpose – The aim 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 the USA). Design/methodology/approach – The authors consider the period 1973-2006 using data provided by the European Commission – Economics and Financial Affairs. The method is instrumental variable. The robustness of estimates is checked by means of the Chow and the CUSUM and CUSUMQ tests. The authors consider the traditional specification of the dynamic Verdoorn law and the one which also includes investment to output ratio (I/Y), as a proxy of the capital growth rate, and the average labor cost growth, as a proxy of supply factors. Findings – The 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. Originality/value – The authors consider the most recent years, which has been characterized by a constant decline in the average GDP growth rates; a productivity growth decline; the long-term reduction in the manufacturing share of total employment. The authors examine the importance of alternative hypotheses such as those related to the existence of supply constraints. The authors check the stability of the KVL throughout the period under the consideration and across countries. The authors evaluate whether, in the case of the developed countries, economies of scale are significant.

Differences in increasing returns between technological sectors

2016 ◽  
Vol 43 (5) ◽  
pp. 863-878 ◽  
Author(s):  
João P. Romero ◽  
John S.L. McCombie
Keyword(s):  
Returns To Scale ◽  
Manufacturing Industries ◽  
Increasing Returns ◽  
Estimation Methods ◽  
High Tech ◽  
System Gmm ◽  
Content Type ◽  
Increasing Returns To Scale ◽  
New Evidence ◽  
Verdoorn's Law

Purpose The purpose of this paper is twofold: to investigate the existence of different degrees of returns to scale in low-tech and high-tech manufacturing industries; and to examine whether the degrees of returns to scale change through time. Design/methodology/approach The empirical investigation implemented in the paper uses data from the EU KLEMS Database, covering a sample of 12 manufacturing industries in 11 OECD countries over the period 1976-2006. The investigation employed two different estimation methods: instrumental variables and system GMM. The robustness of the results was assessed by employing two different specifications of Kaldor-Verdoorn’s Law, by using lags and five-year averages to smooth business-cycle fluctuations, and by dividing the sample into two time periods. Findings The results reported in the paper provide strong evidence in support of the hypothesis of substantial increasing returns to scale in manufacturing. The investigation suggests that high-tech manufacturing industries exhibit larger degrees of returns to scale than low-tech manufacturing industries. Finally, the analysis revealed also that the magnitude of the returns to scale in manufacturing have increased in the last decades, driven by increases in the magnitude of returns to scale observed in high-tech industries. Originality/value No previous work has assessed the hypothesis that increasing returns to scale vary according to the technological content of industries. Moreover, no previous work has used system GMM or data from EU KLEMS to test Kaldor-Verdoorn’s Law. Most importantly, the findings of the paper present new evidence on the degree of returns to scale in high-tech and low-tech manufacturing industries.

Economies of Scale and Farm Size in the Antebellum Sugar Sector

1977 ◽  
Vol 37 (4) ◽  
pp. 959-980 ◽  
Author(s):  
Mark D. Schmitz
Keyword(s):  
Economies Of Scale ◽  
Returns To Scale ◽  
Scale Economies ◽  
Increasing Returns ◽  
Farm Size ◽  
Sugar Production ◽  
Steam Power ◽  
Increasing Returns To Scale ◽  
Plantation Economy ◽  
Manufacturing Stage

This article explains the emergence of a plantation economy in the antebellum sugar sector. The hypothesis of increasing returns to scale was tested using a Zellner-Revankar generalized production function model. Economies of scale were found using samples from the manuscript censuses, but these scale economies diminished with size. A second important factor in explaining the size distribution of farms was the dual technology in the manufacturing stage of sugar production. Farms with inferior horse-power mills had poorer survival records and less flexibility in expansion than those using steam power mills.

scholarly journals Increasing Returns and Economic Growth of Russian Regions: Empirical Verification of Verdoorn’s Law

2020 ◽  
Vol 7 (6) ◽  
pp. 39-48
Author(s):  
Artem Isaev ◽  
Keyword(s):  
Growth Rates ◽  
Manufacturing Industry ◽  
Economies Of Scale ◽  
Regional Growth ◽  
Returns To Scale ◽  
Increasing Returns ◽  
Extended Model ◽  
Russian Regions ◽  
Increasing Returns To Scale ◽  
The Russian Federation

The paper tests the Kaldor-Verdoorn model on the base of the Russian Federation regional data for 2005–2017. According to the model, the process of regional growth has the property of cumulative causality. As a result of the benefits bringing by economies of scale, industrialized regions demonstrate faster growth rates at the expense of their economically less-advanced counterparts. Traditional and extended model specifications are examined. The extended specification additionally takes into account the presence of large agglomerations in a number of Russian regions. Estimates demonstrate the presence of cumulative causality and significant increasing returns to scale in manufacturing industry of Russian regions. Meanwhile, the study did not reveal an impact of large industrial agglomerations on the growth rates of the corresponding regions

scholarly journals An empirical study on the returns to scale of supply structure in China’s economic growth: 1993–2015

2019 ◽  
Vol 2 (2) ◽  
pp. 354-372
Author(s):  
Baoping Ren ◽  
Wei Jie
Keyword(s):  
Economic Growth ◽  
Developing Economies ◽  
Returns To Scale ◽  
Economic Structure ◽  
Structural Reform ◽  
Increasing Returns ◽  
Supply Side ◽  
Content Type ◽  
Increasing Returns To Scale ◽  
Industrial Sectors

Purpose Constant or decreasing returns and increasing returns to scale are two kinds of mechanism in economic growth. The goal of supply-side structural reform is to promote the establishment of the mechanism with increasing returns to scale. The paper aims to discuss this issue. Design/methodology/approach This paper argues that the overall economic structure of the developing economy has been divided into the sector of constant or decreasing returns to scale and the sector of increasing returns to scale due to the dual economic structure. Among them, the supply-side structural reform is mainly to reduce the sector of decreasing returns to scale and increase the sector of increasing returns to scale. Based on the hypothesis of such two-sector economic structure in the supply side of developing economies and on the industrial data, this paper empirically tests the returns to scale of China’s supply structure. The result suggests that so far the sector of constant or decreasing returns to scale dominates the supply structure of China’s economic growth, which results in the state of decreasing returns to scale in China’s overall economy. Findings Therefore, to realize the long-term sustained growth and transformation of the development pattern of China’s economy, the authors must carry out the supply-side structural reform, vigorously develop the modern industrial sectors characterized by modern knowledge and technology, and promote the development of an innovation-driven economy. Originality/value Besides, the authors must accelerate the transformation from traditional industrial sectors to modern industrial sectors, actively promote China’s industrial structure toward rationalization and high gradation, as well as build a modern industrial system so as to facilitate the formation of the mechanism of increasing returns to scale and accelerate the transformation of the driving force of China’s economic growth.

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