IDEAS home Printed from https://ideas.repec.org/a/eee/streco/v42y2017icp56-66.html
   My bibliography  Save this article

Manufacturing as an engine of growth: Which is the best fuel?

Author

Listed:
  • Cantore, Nicola
  • Clara, Michele
  • Lavopa, Alejandro
  • Soare, Camelia

Abstract

Recent contributions of the development economics literature question the role of the manufacturing sector as an engine of growth. The experience of countries like India, which is investing in the services sector, and failures of industrialization in Africa and Latin America have led to scepticism about the effectiveness of manufacturing to foster development. The contribution of this paper is twofold. First, with the use of GMM techniques to treat the endogeneity bias and a sample of 80 countries for the period 1980–2010, the paper provides new evidence supporting the role of the manufacturing sector as an engine of growth. Second, the paper investigates which fuel is best for the engine. By applying a LMDI (Log Mean Divisia Index) technique, we decompose the manufacturing sector's growth rate into components of structural transformation and employment scale. Whereas structural transformation refers to an increase of manufacturing value added based on drivers that strengthen manufacturing industries (in terms of manufacturing productivity and manufacturing labour share), the employment scale component refers to an increase of manufacturing value added based on a driver (total employment) that does not promote a transition in which the manufacturing sector assumes a leading role. We find that structural transformation rather than employment scale effects enhances economic growth and that not every dollar for additional industrialization matters for development.

Suggested Citation

  • Cantore, Nicola & Clara, Michele & Lavopa, Alejandro & Soare, Camelia, 2017. "Manufacturing as an engine of growth: Which is the best fuel?," Structural Change and Economic Dynamics, Elsevier, vol. 42(C), pages 56-66.
    • Handle: RePEc:eee:streco:v:42:y:2017:i:c:p:56-66
    DOI: 10.1016/j.strueco.2017.04.004
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0954349X17301194
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.strueco.2017.04.004?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. A. P. Thirlwall, 2015. "Testing Kaldor’s Growth Laws across the Countries of Africa," Palgrave Studies in the History of Economic Thought, in: Essays on Keynesian and Kaldorian Economics, chapter 15, pages 339-351, Palgrave Macmillan.
    2. Margaret S. McMillan & Dani Rodrik, 2011. "Globalization, Structural Change and Productivity Growth," NBER Working Papers 17143, National Bureau of Economic Research, Inc.
    3. Stephen Bond & Anke Hoeffler, 2001. "GMM Estimation of Empirical Growth Models," Economics Series Working Papers 2001-W21, University of Oxford, Department of Economics.
    4. David Roodman, 2009. "How to do xtabond2: An introduction to difference and system GMM in Stata," Stata Journal, StataCorp LP, vol. 9(1), pages 86-136, March.
    5. M. E. Bontempi & I. Mammi, 2012. "A strategy to reduce the count of moment conditions in panel data GMM," Working Papers wp843, Dipartimento Scienze Economiche, Universita' di Bologna.
    6. Bruno Cesar Araujo & Francesco Bogliacino & Marco Vivarelli, 2009. "The Role of "Skill enhancing Trade" in Brazil: Some Evidence from Microdata," Jena Economics Research Papers 2009-041, Friedrich-Schiller-University Jena.
    7. John Weiss, 2005. "Export Growth and Industrial Policy: Lessons from the East Asian Miracle Experience," IDB Publications (Working Papers) 47618, Inter-American Development Bank.
    8. F. V. Vieira & M. Holland & C. Gomes da Silva & L. C. Bottecchia, 2013. "Growth and exchange rate volatility: a panel data analysis," Applied Economics, Taylor & Francis Journals, vol. 45(26), pages 3733-3741, September.
    9. Szirmai, Adam, 2012. "Industrialisation as an engine of growth in developing countries, 1950–2005," Structural Change and Economic Dynamics, Elsevier, vol. 23(4), pages 406-420.
    10. Blundell, Richard & Bond, Stephen & Devereux, Michael & Schiantarelli, Fabio, 1992. "Investment and Tobin's Q: Evidence from company panel data," Journal of Econometrics, Elsevier, vol. 51(1-2), pages 233-257.
    11. Penelope Pacheco-Lopez & A.P.Thirlwall, 2013. "A New Interpretation of Kaldor's First Growth Law for Open Developing Countries," Studies in Economics 1312, School of Economics, University of Kent.
    12. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    13. Stephen Bond & Anke Hoeffler & Jonathan Temple, 2001. "GMM Estimation of Empirical Growth Models," Economics Papers 2001-W21, Economics Group, Nuffield College, University of Oxford.
    14. Acevedo, Alejandra & Mold, Andrew & Perez Caldentey, Esteban, 2009. "The Analysis of ‘Leading Sectors’: A Long term view of 18 Latin American economies," MPRA Paper 15017, University Library of Munich, Germany.
    15. Szirmai, Adam & Naude, Wim & Alcorta, Ludovico (ed.), 2013. "Pathways to Industrialization in the Twenty-First Century: New Challenges and Emerging Paradigms," OUP Catalogue, Oxford University Press, number 9780199667857.
    16. repec:dgr:rugggd:gd-98 is not listed on IDEAS
    17. Ang, B. W., 2005. "The LMDI approach to decomposition analysis: a practical guide," Energy Policy, Elsevier, vol. 33(7), pages 867-871, May.
    18. Timmer, Marcel P. & Vries, Gaaitzen J. de, 2007. "A Cross-country Database For Sectoral Employment And Productivity in Asia and Latin America, 1950-2005," GGDC Research Memorandum GD-98, Groningen Growth and Development Centre, University of Groningen.
    19. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    20. Matteo Cervellati & Florian Jung & Uwe Sunde & Thomas Vischer, 2014. "Income and Democracy: Comment," American Economic Review, American Economic Association, vol. 104(2), pages 707-719, February.
    21. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    22. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Borsato, Andrea & Lorentz, André, 2023. "The Kaldor–Verdoorn law at the age of robots and AI," Research Policy, Elsevier, vol. 52(10).
    2. Zheng, Xinye & Li, Fanghua & Song, Shunfeng & Yu, Yihua, 2013. "Central government's infrastructure investment across Chinese regions: A dynamic spatial panel data approach," China Economic Review, Elsevier, vol. 27(C), pages 264-276.
    3. Zimmerman, Paul R., 2014. "The deterrence of crime through private security efforts: Theory and evidence," International Review of Law and Economics, Elsevier, vol. 37(C), pages 66-75.
    4. Martin Andersson & Hans Lööf, 2011. "Agglomeration and productivity: evidence from firm-level data," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 46(3), pages 601-620, June.
    5. Beqiraj, Elton & Fedeli, Silvia & Giuriato, Luisa, 2020. "Policy tolerance of economic crime? An empirical analysis of the effect of counterfeiting on Italian trade," European Journal of Political Economy, Elsevier, vol. 65(C).
    6. Gründler, Klaus & Krieger, Tommy, 2016. "Democracy and growth: Evidence from a machine learning indicator," European Journal of Political Economy, Elsevier, vol. 45(S), pages 85-107.
    7. Berk, Istemi & Kasman, Adnan & Kılınç, Dilara, 2020. "Towards a common renewable future: The System-GMM approach to assess the convergence in renewable energy consumption of EU countries," Energy Economics, Elsevier, vol. 87(C).
    8. Rojas-Vallejos, Jorge & Lastuka, Amy, 2020. "The income inequality and carbon emissions trade-off revisited," Energy Policy, Elsevier, vol. 139(C).
    9. Gründler, Klaus, 2015. "The vanishing effect of finance on growth," Discussion Paper Series 133, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.
    10. Mindaugas Butkus & Janina Seputiene, 2018. "Growth Effect of Public Debt: The Role of Government Effectiveness and Trade Balance," Economies, MDPI, vol. 6(4), pages 1-27, November.
    11. Martin Andersson & Hans Lööf, 2009. "Learning‐by‐Exporting Revisited: The Role of Intensity and Persistence," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(4), pages 893-916, December.
    12. Yerrabati, Sridevi, 2022. "Does vulnerable employment alleviate poverty in developing countries?," Economic Modelling, Elsevier, vol. 116(C).
    13. Gründler, Klaus & Scheuermeyer, Philipp, 2015. "Income inequality, economic growth, and the effect of redistribution," W.E.P. - Würzburg Economic Papers 95, University of Würzburg, Department of Economics.
    14. Vogel, Johanna, 2013. "Regional Convergence in Europe: A Dynamic Heterogeneous Panel Approach," MPRA Paper 51794, University Library of Munich, Germany.
    15. Vu, K.M., 2017. "Structural change and economic growth: Empirical evidence and policy insights from Asian economies," Structural Change and Economic Dynamics, Elsevier, vol. 41(C), pages 64-77.
    16. Diego Bastourre & Jorge Carrera & Javier Ibarlucia, 2009. "What is Driving Reserve Accumulation? A Dynamic Panel Data Approach," Review of International Economics, Wiley Blackwell, vol. 17(4), pages 861-877, September.
    17. Islam, Md. Rabiul & McGillivray, Mark, 2020. "Wealth inequality, governance and economic growth," Economic Modelling, Elsevier, vol. 88(C), pages 1-13.
    18. Bianka Dettmer, 2012. "Business services outsourcing and economic growth: Evidence from a dynamic panel data approach," Jena Economics Research Papers 2012-049, Friedrich-Schiller-University Jena.
    19. Töngür, Ünal & Hsu, Sara & Elveren, Adem Yavuz, 2015. "Military expenditures and political regimes: Evidence from global data, 1963–2000," Economic Modelling, Elsevier, vol. 44(C), pages 68-79.
    20. Gründler, Klaus & Scheuermeyer, Philipp, 2018. "Growth effects of inequality and redistribution: What are the transmission channels?," Journal of Macroeconomics, Elsevier, vol. 55(C), pages 293-313.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:streco:v:42:y:2017:i:c:p:56-66. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/525148 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.