A Generalized Fact and Model of Long-Run Economic Growth: Kaldor Fact as a Special Case
AbstractThis paper provides new evidence on the long-run relationship between economic growth and labor's share in national income, based on a comprehensive panel data set for 123 countries from 1950 to 2004. Xie's primary finding is that labor's share follows a cubic relationship with real GDP per capita over the long process of development. At the beginning of the modern economic growth process, the share of labor in national income first decreases until an initial threshold is reached. After that, labor's share keeps increasing until the country's GDP per capita reaches a second threshold before falling again. Xie argues that these dynamics apply not only to the less developed countries in the postwar years, but also to the advanced countries like the United States and the United Kingdom during their early economic take-offs, starting in the late 18th and 19th century, respectively. Finally, he proposes a two-sector constant elasticity of substitution (CES)-type growth model and simulate the model to replicate and explain the possible mechanism behind such a nonlinear pattern of movements in labor's share.
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Bibliographic InfoPaper provided by Peterson Institute for International Economics in its series Working Paper Series with number WP11-4.
Date of creation: Jan 2011
Date of revision:
Constant elasticity of substitution; Kaldor fact; Kuznets curve; Labor's share; Structural change;
Find related papers by JEL classification:
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- P21 - Economic Systems - - Socialist Systems and Transition Economies - - - Planning, Coordination, and Reform
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-12 (All new papers)
- NEP-DEV-2011-02-12 (Development)
- NEP-FDG-2011-02-12 (Financial Development & Growth)
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