The Ambiguity of Verdoorn’s Law: A Case Study of the British Regions

Given that the model underlying Verdoorn's Law is neoclassical, it is surprising the usage it has received in non-neoclassical models on the condition of economic progress. Verdoorn's (1949) use of Tinbergen's 1942 neoclassical model (Tinbergen, 1959, pp. 182-221) to show the feasibility of the elasticity of capital with respect to labor being constant over time (a necessary prerequisite for the stability of the Verdoorn coefficient under the conditions of long-period analysis) had only static increasing returns to scale; no dynamic increasing economies or learning by doing was involved. It was Kaldor's (1966) application of Verdoorn's Law to help explain the causes of slow growth in the British economy in the post-war years that started the debate both on the validity of Kaldor's hypothesis and what Verdoorn's Law might indicate. Verdoorn stated the model in terms of: