This is the answer from our Economic lecturer in TU Delft. The question is about Kaldor Paradox.
Dear Reni,
Kaldor found a paradox: countries which featured the highest growth of relative unit labour cost, were also gaining export market share. He explained this paradox by pointing out that export competitiveness depends most strongly on the quality of your products. High-tech high-quality products are in strong demand, and their price and unit labour costs do not matter (much).
In the book we do not find exactly the same thing as Kaldor found. We find that export demand is mostly insensitive to RULC or there is a weak negative association between export growth and RULC-growth. The interpretation is however similar: unit labour costs and prices do matter much less for export growth than people believe, especially for higher-tech (manufactured) goods. This means that if one wants to promote export growth, cutting wage costs and reducing the price may not lead to a big increase in exports; instead, to increase one’s export market share one should try to produce high-quality goods (embodying the latest technology), which are superior to the goods produced by your competitors.
Best regards,
Servaas Storm
Dear Reni,
Kaldor found a paradox: countries which featured the highest growth of relative unit labour cost, were also gaining export market share. He explained this paradox by pointing out that export competitiveness depends most strongly on the quality of your products. High-tech high-quality products are in strong demand, and their price and unit labour costs do not matter (much).
In the book we do not find exactly the same thing as Kaldor found. We find that export demand is mostly insensitive to RULC or there is a weak negative association between export growth and RULC-growth. The interpretation is however similar: unit labour costs and prices do matter much less for export growth than people believe, especially for higher-tech (manufactured) goods. This means that if one wants to promote export growth, cutting wage costs and reducing the price may not lead to a big increase in exports; instead, to increase one’s export market share one should try to produce high-quality goods (embodying the latest technology), which are superior to the goods produced by your competitors.
Best regards,
Servaas Storm
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