Manufacturing and Economic Growth in Developing Countries, 1950-2005
Adam Szirmai & Bart Verspagen
#2011-069
Since the middle of the eighteenth century, manufacturing has functioned
as the main engine of economic growth and development. However, in
recent research, questions have been raised concerning the continued
importance of the manufacturing sector for economic development. This
paper reexamines the role of manufacturing as a driver of growth in
developing countries in the period 1950-2005.
The paper makes use of a newly constructed panel dataset of annual value
added shares (in current prices) for manufacturing, industry,
agriculture and services for the period 1950-2005. Regression analysis
is used to analyse the relationships between sectoral shares and per
capita GDP growth for different time periods and different groups of
countries. For the total sample, we find a moderate positive impact of
manufacturing on growth in line with the engine of growth hypothesis.
Splitting our sample into three subperiods, we only find a direct effect
of manufacturing on growth for the middle period 1970-1990. We also find
interesting interaction effects of manufacturing with education and
income gaps. In a comparison of the subperiods, it seems that since
1990, manufacturing is becoming a more difficult route to growth than
before.
Keywords: Structural Change, Manufacturing, Engine of Growth, Catch-up
JEL: O40 (Economic Growth.General); O14 (Industrialisation,
Manufacturing and Service Industries); N6 (Manufacturing and
Construction)