37 research outputs found
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A sectoral explanation of per capita income convergence and divergence: Estimating Verdoorn's law for countries at different stages of development
This paper estimates the Verdoorn law (the relationship between productivity and output growth) for manufacturing industries for 70 developed and developing countries. It tests the hypothesis that the various manufacturing industries exhibit different values of the Verdoorn coefficient and hence different degrees of increasing returns, broadly defined. The paper analyses especially whether or not these estimates vary according to the level of a country’s economic development, controlling for such factors as human capital and the level of technology. It is found that this is the case. Countries in the early stages of development would benefit from specialising in low-tech manufacturing and consumption goods, as these industries have larger Verdoorn coefficients than in the more developed countries. However, as countries reach higher stages of development, it is advantageous for them specialize in the high-tech manufacturing industries and the capital goods industries. These have relatively high values of the Verdoorn coefficient compared with the less developed countries. It is concluded that the composition of industries that leads to the fastest growth of manufacturing productivity differs depending upon the level of economic development
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Verdoorn’s law and productivity dynamics: An empirical investigation into the demand and supply approaches
According to Verdoorn’s law, productivity growth is endogenous to output growth, due to the existence of increasing returns to scale, broadly defined. Such an idea is at the root of both the endogenous growth theory and the Kaldorian approach. While in Kaldor’s view, a country’s growth is demand-driven, in the endogenous growth theory, growth is determined by the growth of the factors of production and hence growth is supply-constrained. This article empirically tests both assumptions for Verdoorn’s law by using a dynamic panel of manufacturing industries for seventy countries at different stages of development for the years between 1963 and 2009. In order to distinguish between these approaches, two different specifications are estimated where the growth of output and the supply of factors of production are instrumentalized by system generalized method of moments (GMM)estimators. The results show that, if it is assumed that the growth rates of countries are demand-driven, a faster growth of output increases productivity growth due to the existence of increasing returns. Alternatively, if it is assumed that output growth is driven by the growth of the supply of the factors of production, it is not possible to conclude that productivity growth is induced by output growth
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Thirlwall's law and the specification of export and import functions
The contribution of this paper is threefold. First, it proposes general specifications for export and import functions that encompass the contributions of both Kaldorian and Schumpeterian literatures on the determinants of trade performance. Second, the paper provides evidence of the impact of nonprice competitiveness, measured by the growth of relative economic efficiency on export and import growth in different technological sectors. Third, it shows that the magnitude of income elasticities of demand is partially determined by relative economic efficiency
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Some unpleasant currency-devaluation arithmetic in a post Keynesian macromodel
The conventional view argues that devaluation increases the price competitiveness of domestic goods, thus allowing the economy to achieve a higher level of economic activity. However, these theoretical treatments largely neglect two important effects following devaluation: (1) the inflationary impact on the price of imported intermediate inputs, which raises the prime costs of firms and deteriorates partially or totally their price competitiveness; and (2) the redistribution of income from wages to profits, which ambiguously affects the aggregate demand as workers and capitalists have different propensities to save. New structuralist economists have explored these stylized facts neglected by the orthodox literature and, by and large, conclude that devaluation has contractionary effects on growth and positive effects on the external balance. Given that empirical evidence on the correlation between devaluation and growth is quite mixed, we develop a more general Keynesian–Kaleckian model that takes into account both opposing views in order to analyze the net impact of currency depreciation on the short-run growth rate and the current account. We demonstrate that this impact can go either way, depending on several conditions such as the type of growth regime, that is, wage-led or profit-led, and the degree of international price competitiveness of domestic goods
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Exchange Rate, Income Distribution and Technical Change in a Balance-of-Payments Constrained Growth Model
This article develops a formal model that accounts for the net effect of an exchange rate devaluation on the long-term balance-of-payments constrained growth rate. Such a model investigates how a currency devaluation impacts on the home country non-price competitiveness via changes in income distribution and the rate of technological innovation. The model is built upon two plausible hypotheses. First, it is assumed that the rate of technological innovation is directly related to the income elasticity of demand for exports and inversely related to the income elasticity of demand for imports. Second, it is assumed that a redistribution of income between labor and capital has an ambiguous direct impact on the income elasticities ratio. The model shows that the net impact of a currency devaluation on growth can go either way depending on the institutional framework of the economy.This is the author accepted manuscript. The final version is available from Taylor & Francis via http://dx.doi.org/10.1080/09538259.2016.120581
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Does real exchange rate undervaluation really promote economic growth?
This article seeks to reassess the empirical literature on real exchange rate misalignment and growth in light of the extensive discussion about the relationship between income distribution and growth in developing economies. We state that the dynamic relationship between changes in the real exchange rate and output growth can be characterized by two conflicting partial effects, as follows: i) undervaluation promotes growth-enhancing changes in the productive structure of the economy by stimulating technological progress and knowledge spillovers, thus affecting positively output growth; ii) undervaluation raises income inequality and hence harms output growth. Though there are a vast number of empirical studies presenting robust evidence of a positive relationship between currency undervaluation and growth for developing economies, none has yet explicitly considered the potentially negative distributional effects of undervaluation on growth. Our empirical model adds to this literature by suggesting that, once both functional income distribution and the level of technological capabilities as relevant features of the structure of the economy are explicitly taken into account, the direct impact of real exchange rate misalignment on growth becomes statistically non-significant for a representative sample of developing countries. Further, based on our results, we state that the real exchange rate only affects growth indirectly through its impacts on functional income distribution and technological innovation. Our estimates have shown that the indirect impact of undervaluation on growth in developing countries is negatively signed. The results are robust to accounting for reverse causality through GMM-system analysis, using lagged observations in difference and level of endogenous variables as instruments
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The Multi-Sectoral Thirlwall’s Law: evidence from 14 developed European countries using product-level data
The paper reports estimates of import and export functions for five technological sectors in 14 developed European countries. These functions have never before been estimated for developed countries adopting a technological classification of sectors. The paper compares estimates of income elasticities found using vector errorcorrection models employing aggregate deflators, with estimates found using crossproduct panels employing product-specific quality-adjusted price indexes recently calculated by Feenstra and Romalis (2014). The results indicate that the income elasticities of imports and exports are higher for medium- and high-tech manufactures, which suggests the importance of moving from the production of simple goods to the production of goods with high technological content. The estimates suggest also that the Multi-Sectoral Thirlwall’s Law holds for the countries analysed, while comparing the estimates revealed that cross-product panels with quality-adjusted prices generate considerably more robust results. The investigation reveals that using a more recent time period generates estimates of income elasticities of demand for primary products and resource based manufactures that tend to be higher than the estimates found by studies that have used longer time periods, while the opposite holds for low-, medium-, and high-tech manufactures.This is the author accepted manuscript. The final version is available from Taylor & Francis via http://dx.doi.org/10.1080/02692171.2015.110220
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Differences in increasing returns between technological sectors: A panel data investigation using the EU KLEMS database
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.
The authors would like to thank Dr. Marta Spreafico and two anonymous referees for their helpful comments. The usual disclaimer applies. Financial support from the Coordination for the Improvement of Higher Education Personnel (CAPES-Brazil), process number 0257-11-7, is gratefully acknowledged.This is the author accepted manuscript. The final version is available from Journal of Economic Studies via https://doi.org/10.1108/JES-03-2015-004
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Productivity growth of the cities of Jiangsu province, China: a Kaldorian approach
© 2017 Informa UK Limited, trading as Taylor & Francis Group This paper considers the determinants of economic growth of the cities of Jiangsu province, China, adopting a Kaldorian approach. It is found that there is a close correlation between the growth of non-industry and industry (Kaldor’s first law) that provides indirect evidence for the export-base theory. The paper discusses two competing explanations of the foundations of the Verdoorn law (Kaldor’s second law), which, in its simplest form, is the relationship between industrial productivity and output growth. It also considers the static–dynamic Verdoorn law paradox. This arises from the fact that estimating the Verdoorn law in log-levels often gives statistically insignificant estimates of the Verdoorn coefficient while the use of growth rates gives significant values of around one half. The results show that this does not occur when data for the cities are used. A plausible explanation for the paradox is that it results from spatial aggregation bias. It is also found that inter-province urban productivity disparities first increase, but subsequently decrease over the period considered