A Generalized Fact and Model of Long-Run Economic Growth: Kaldor Fact as a Special Case

38 Pages Posted: 4 Feb 2011

See all articles by Daniel Xie

Daniel Xie

Peterson Institute for International Economics

Date Written: February 3, 2011

Abstract

This 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.

Keywords: Constant Elasticity of Substitution, Kaldor Fact, Kuznets Curve, Labor's Share, Structural Change

JEL Classification: O41, P21, E32

Suggested Citation

Xie, Daniel, A Generalized Fact and Model of Long-Run Economic Growth: Kaldor Fact as a Special Case (February 3, 2011). Peterson Institute for International Economics Working Paper No. 11-4, Available at SSRN: https://ssrn.com/abstract=1754538 or http://dx.doi.org/10.2139/ssrn.1754538

Daniel Xie (Contact Author)

Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

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