Nicholas Kaldor, Increasing Returns and Verdoorn's Law

Chandra, Ramesh and Sandilands, Roger J. (2020) Nicholas Kaldor, Increasing Returns and Verdoorn's Law. Discussion paper. University of Strathclyde, Glasgow.

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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.

  • Item type:Monograph(Discussion paper)
    ID code:73443
    Dates:
    Date
    Event
    28 March 2020
    Published
    Notes:Strathclyde Discussion Papers Economics, No. 20-02.
    Subjects:Social Sciences > Economic Theory
    Department:Strathclyde Business School > Economics
    Depositing user: Pure Administrator
    Date deposited:04 Aug 2020 12:54
    Last modified:09 Apr 2024 04:44
    URI:https://strathprints.strath.ac.uk/id/eprint/73443
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