Emanuele Millemaci

Kaldor-Verdoorn’s law and increasing returns to scale: a comparison across developed countries

The object 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 United States). We consider the period 1973-2006 using data provided by the European Commission - Economics and Financial Affairs. Our findings suggest that the law is valid for the manufacturing of Italy, US, Belgium and Australia. Capital growth and labor cost growth do not appear relevant in explaining productivity growth. The estimated Verdoorn coefficients are found to be stable throughout the period.

Kaldor-Verdoorn's law and increasing returns to scale

Purpose – The aim of this study is to investigate the validity of the Kaldor-Verdoorns 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.

Dynamically Inconsistent Preferences and Money Demand

This paper focuses on two main issues. First, we find that, on average, households’ discount rates decline. This implies dynamically inconsistent preferences. Second, we calculate an indicator of the degree of dynamic inconsistency that may help us to understand how households overcome their self-control problems. We use a micro dataset containing households’ reports on the compensation for receiving hypothetical rewards with delays. We find that individuals with more severely dynamicly inconsistent preferences on average hold a statistically significantly lower share of their total wealth in checking accounts. A possible interpretation is that subjects use precommitment strategies to limit their temptation to consume immediately.