THE KALDOR FACTS
The modern study of economic growth starts in the post-war period and was mostly
motivated by the experience of the developed world. In his classical article (Kaldor 1957),
Nicolas Kaldor stated some basic facts that he observed economic growth seemed to satisfy,
at least in those countries. These came to be known as the Kaldor facts, and the main challenge
of growth theory as initially consituted was to account simultaneously for all these facts. But,
what were these Kaldor facts?
1. Output per worker shows continous growth, with no tendency to fall
2. The capital/output ratio is nearly constant
3. Capital per worker shows continous growth
4. The rate of return on capital is nearly constant
5. Labour and capital receive constant shared of total income
6. The growth rate of output per worker differs substantially across countries (and over
time, we can add, miracle and disasters)
Most of these facts have aged well. But not all of them. For example, we now know the
constancy of the interest rate is not so when seen from a big historical sweep. In fact, interest
rates have been on a secular downward trend that can be dated back to the 1300’s (Schmelzing
2019). (Of course rates are way down now, so the question is how much lower can they go?)
We will show you the data in a few pages.
In addition, in recent years, particularly since the early 1980s, the labour share has fallen
significantly in most countries and industries. There is much argument in the literature as to the
reasons why (see Karabarbounis and Neiman (2014) for a discussion on this) and the whole
debate about income distribution trends recently spearheaded by Piketty (2014) has to do with
this issue. We will come back to it shortly.
As it turns out Robert Solow established a simple model (Solow 1956) that became the
first working model of economic growth. Solow’s contribution became the foundation of the
NGM, and the backbone of modern growth theory, as it seemed to fit the Kaldor facts. Any study
of growth must start with this model, reviewing what it explains – and, just as crucially, what it
fails to explain.
