The Extended Verdoorn Law with Undesirable Outputs: The Case of the Turkish Manufacturing Industry
DOI:
https://doi.org/10.63556/tisej.2026.1792Keywords:
Verdoorn's Law, labor productivity, carbon emissions, output, undeirable outputAbstract
This study examines the relationship between labor productivity, value added, and emissions in the Turkish manufacturing industry within a microeconomic framework, extending Verdoorn’s law to incorporate the dimension of environmental sustainability. While the traditional Verdoorn hypothesis predicts that output growth increases productivity, this study incorporates per capita carbon emissions as an unwanted output into the model. Panel data for 15 manufacturing industry sub-sectors, covering the period 2010–2022, were first analyzed in a static framework using the Driscoll–Kraay estimator. The robustness of the findings was then tested under a dynamic panel structure using the Least Squares Dummy Variable Corrected (LSDVC) estimator. The results of the static and dynamic analyses consistently support the validity of Verdoorn’s law, indicating that per capita value added has a positive and significant impact on labor productivity. While emission increases have a negative impact on productivity in both models, the positive coefficient of the interaction term between value added and emissions indicates that high production levels can partially offset the adverse effects of environmental pressures. The findings generally reveal that an environmental dimension should be incorporated into the output-efficiency relationship in the manufacturing industry, and that it is crucial to address growth and sustainability dynamics holistically at the microeconomic level.
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