Did the Verdoorn Law Hang on Japan
Kaldor (1966) presented Verdoorn "law," having found a statistically significant relation between manufacturing productivity growth and manufacturing output growth using least squares on a small postwar sample that included Japanese data. Rowthorn (1975) claimed that the Verdoorn "law" fell apart when manufacturing employment growth was the independent variable and Japan was removed from Kaldor's sample. This paper shows if output growth is independent of the random error term, then the maximum likelihood estimates of Kaldor's equation arrived at by least squares are sufficient to determine the maximum likelihood estimates and the statistical significance of Rowthorn's equation. It is wrong in this context to say that the "law" fell apart.
Volume (Year): 17 (1991)
Issue (Month): 1 (Jan-Mar)
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- Arthur M. Okun, 1973. "Upward Mobility in a High-Pressure Economy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(1), pages 207-262.
- McCombie, J S L, 1985. "Increasing Returns and the Manufacturing Industries: Some Empirical Issues," The Manchester School of Economic & Social Studies, University of Manchester, vol. 53(1), pages 55-75, March.
- Plosser, Charles I. & Schwert, G. William, 1979. "Potential GNP: Its measurement and significance : A dissenting opinion," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 10(1), pages 179-186, January.
- Rowthorn, R E, 1975. "What Remains of Kaldor's Law?," Economic Journal, Royal Economic Society, vol. 85(337), pages 10-19, March.
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