Verdoorns

The second part of Verdoorn's law states that there exists a causal relationship between the growth of manufacturing output and the growth of manufacturing labor productivity. The third part of Verdoorn's law asserts that growth in manufacturing sector is the cause of growth in economy-wide labor productivity.* This has been noticed by UNIDO [40], among others, that rapid industrial growth was the main source of overall labor productivity growth. In our one-sector model, the third part is the same as the second and we assume that productivity growth is proportional to output growth by virtue of static and dynamic economies of scale, that is:

* To be more precise, the growth of the manufacturing sector leads to growth in non-manufacturing labor productivity.

where l and l are the rates at which labor productivity grows with the growth of output in the home country and the foreign country, respectively. l and l are called Verdoorn coefficients.

Negotiating Essentials

Negotiating Essentials

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