Nicolas Kaldor, increasing returns and Verdoorn's Law

Roger Sandilands and Ramesh Chandra

No 2002, Working Papers from University of Strathclyde Business School, Department of Economics

Abstract: Kaldor, a student of Allyn Young, made much of Verdoorn’s Law but the evidence for this ‘law’ is at best mixed. Verdoorn himself in his 1980 Economic Journal paper made it clear that his law did not have as general a validity as he had earlier believed. Evidence suggests that it is possible for agricultural productivity to grow many times faster than that in manufacturing, as in the US during 1947-84. Also, Young (1928) himself did not regard the law of diminishing returns as useful for prophesying the prospects of agriculture as the agricultural fields of newer lands had been brought closer to the older world through revolution in transportation and technical change in agriculture. Moreover, the logic of Verdoorn’s Law of favouring manufacturing at the cost of other sectors distorts intersectoral relationships, leads to adverse terms of trade for agriculture, and is likely to pose a demand constraint for industry itself. To undo one wrong (i.e., protection to industry), one has to match it with other wrongs like price support and marketing board in agriculture, and dual exchange rates to promote exports. The whole economic system becomes an intricate maze with adverse consequences for growth and productivity for the whole economy.

Keywords: Verdoorn’s Law; Increasing returns; Nicholas Kaldor; Allyn Young; Lauchlin Currie (search for similar items in EconPapers)
JEL-codes: B10 B20 B31 O14 O21 O41 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2020-03
New Economics Papers: this item is included in nep-his, nep-hpe and nep-pke
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Journal Article: Nicholas Kaldor, increasing returns and Verdoorn’s Law (2021)
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