Verdoorn’s Law and the Analysis of Steady-State Growth: from an Unsatisfactory Marriage to a New Perspective

This chapter tells a story which has an apparently unfortunate ending. The story concerns a basic, although rather neglected, aspect of Verdoorn’s Law — namely its compatibility with steady-state growth. The story appears to be unfortunate, since the attempts to marry Verdoorn’s Law to the analysis of steady-state growth produce inconsistencies and weaknesses. This fact seems to prevent Verdoorn’s Law from playing a satisfactory role in any long-run analysis. However, as this chapter will briefly show, Verdoorn’s Law can still have a useful role in long-run analysis if its role in economic development is explained and made endogenous.