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The long-run properties of the Kaldor–Verdoorn law: a bounds test approach to a panel of Central and East European (CEE) countries

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  • Hubert Gabrisch

    (Wiesbaden Institute for Law and Economics (WILE))

Abstract

This study attempts to identify the short- and long-run components of the Kaldor–Verdoorn (KV) law. The law claims that demand dynamics drive productivity dynamics. The claim is tested with a panel of ten Central and Eastern-European countries, where productivity and demand growth have been slowing since 2004/2006 and where fears of an end of convergent growth are spreading. Meanwhile, the gradual slowing of output and productivity growth applies not only to the region considered, but it is also a global phenomenon that is occurring despite remarkable technical progress and that is referred to as the productivity puzzle. However, this puzzle would be solved in light of the KV law. To test for its long-term properties, panel cointegration models with autoregressive distributed lags are applied. Our results confirm the law for the region; slower productivity growth is not due to ‘adverse technological progress’ but to weakening external and domestic demand, which might block the implementation of product and process innovations.

Suggested Citation

  • Hubert Gabrisch, 2021. "The long-run properties of the Kaldor–Verdoorn law: a bounds test approach to a panel of Central and East European (CEE) countries," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 48(1), pages 101-121, February.
    • Handle: RePEc:kap:empiri:v:48:y:2021:i:1:d:10.1007_s10663-019-09467-0
    DOI: 10.1007/s10663-019-09467-0
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    Cited by:

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    2. Leon Podkaminer, 2021. "Does trade support global output growth? Further evidence on the global trade – global output connection," Bank i Kredyt, Narodowy Bank Polski, vol. 52(1), pages 23-36.

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    More about this item

    Keywords

    Kaldor–Verdoorn law; Productivity puzzle; Central and Eastern Europe; Autoregressive distributed lag model;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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