The Keynesian theory and the manufactured industry in Portugal

TL;DR

This paper analyzes the Verdoorn law within Portugal's manufactured industry, revealing strong increasing returns and regional divergence, influenced by Portugal's integration into the European Community and support frameworks.

Contribution

It applies panel data econometric methods to Portuguese regional industry data, providing new insights into Verdoorn law effects and regional growth dynamics in Portugal.

Findings

Strong increasing returns in Portuguese manufacturing

Regional divergence observed in the sector

Impact of European integration on industry growth

Abstract

About the economic growth the Keynesian theorists defend circular and cumulative processes, benefiting the rich localities and harming the poorest, without external interventions. In these processes the Verdoorn law has an important role. For Verdoorn (1949) the productivity growth rate is endogenous and depends of the output growth rate, capturing dynamic contexts, endogeneity of the factors and increasing economies of scale, namely in the industry. This relationship later becomes the second law of Kaldor (1966 and 1967). For Portugal there are few works or none, than those of the author, with the Verdoorn law. In this way, seem important analyze this relationship for the manufactured industry of the Portuguese regions and conclude about these contexts in Portugal. It was used data from two periods, 1986-1994 and 1995-1999, and panel data econometric methods. The two periods is to capture the effect of the Portuguese entrance in the European Economic Community and of the first Community Support Framework (1989-1993) for Portugal. As main conclusion, for the two periods, it is verified strong increasing returns in the manufactured industry and as consequence regional divergence of this sector.