Agriculture Reference
In-Depth Information
Chapter 4
The Performance of Manufacturing
in the European Union in the Context
of Agricultural Economics
V
´
tor Jo
˜
o Pereira Domingues Martinho
1
Introduction
In this current context of crisis across many European countries, it is pertinent to
analyze the economic performance for present members of the European Union. In
economic literature there are many authors that defend the manufacturing sector as
the determinant segment for economic growth, namely those related with the
Keynesian theory and with the New Economic Geography, but in different ways.
The Keynesian theory in terms of increasing returns to scale which derives from the
dimension of the industrial firms and the New Economic Geography in terms of the
number of firms. In both cases spillover effects are generated which are able to
induce circular and cumulative processes with advantages for the more developed
regions and sectors.
In this process the Keynesian theory, namely by Kaldor (
1966
,
1967
,
1970
,
1975
,
1981
) through its three laws, defends that the manufacturing sector is the engine of
the economy, because the growth rate of the manufacturing output induces: the
growth rate of the economy, the growth rate of manufacturing labor productivity,
and the growth rate of nonmanufacturing productivity (Mamgain
1999
).
The relationship between the growth rates of labor productivity in manufactur-
ing as dependent upon the growth rate of the output in that sector is known as the
Verdoorn (
1949
) law or second Kaldor law. The Verdoorn law captures increasing
returns to scale derived from learning by doing effects and from the endogeneity of
the factors. This relation can be mathematically formalized in a linear equation
between the two variables and the coefficient, regression being the Verdoorn
coefficient. Following the studies of Kaldor for the UK, it is expected that a value
for the coefficient of Verdoorn positive and less than the unity is around 0.5. Values
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