Industrial development factors: a comprehensive analysis of United States of America, European Union and China

Abstract

A better functioning industrial sector matters directly for growth and contributes indirectly to poverty alleviation, unemployment reduction, trade promotion, exchange of goods and services, increased per capital income, GDP growth etc. in developing and developed economies. Nonetheless, after global financial crisis and fall of Bretton wood system a new debate was generated to re-examine the issue after the implementation of financial liberalization policies in these economies. Therefore, the central theme of this study is to test the industrial development nexus in United States of America, European Union and China. With this background in mind the present research aims to ascertain whether financial liberalization in terms of capital account openness (CAO), trade openness (TO), equity openness (EO), Regulatory factors in terms of World Governance indicator, private sector investment, public sector investment and lastly whether macroeconomic factors in terms of exchange rate (ER) and foreign direct investment (FDI) have had any impact on industrial development. Augmented dicker fully test was applied to estimate stationarity of data, vector auto regression, impulse response function and variance decomposition were used to describe shocks, after effects and magnitudes and intra and inter dependence of the study variables. EO, TO and FDI were significant determinants in European Union. However, Governance, TO and CAO are significant predictors in China and Lastly Governance, ER, FDI, private investment and public investment were significant in United States of America.