Abstract
Using data for 130 developing countries over a 24 year period from 1996 to 2019, this study investigates the role of manufacturing development in sustainable growth and how the contribution of the manufacturing sector to growth is affected by exports and the underlying export-oriented policies. By employing a vintage difference GMM estimation developed by Arellano and Bond (1991), we find that the manufacturing sector positively contributes to economic growth in developing countries, whereas exports (and thus, their related growth policies) lead to deindustrialization and are thus harmful to growth. In addition, we find that this export-led deindustrialization and the resulting negative growth effect might differ depending on a country’s stage of development measured in terms of the per capita income level. In particular, the growth of countries with lower income levels is more severely negatively impacted than in the case of the richer countries, which is consistent with the findings in the literature. Finally, our main results are robust under two alternative regression checks in which we take into account the potential endogeneity problem and additionally control for the share of imports in GDP in the model.
Highlights
According to the engine of growth hypothesis, the manufacturing sector plays an essential role in contributing to economic growth and sustainable development [1,2,3]
How do the exports and their related policies interact with the development of manufacturing and economic growth? In general, do exports worsen industrialization and growth or improve them? Does the impact of exports on industrialization and growth significantly differ between the low-income and high-income countries? In the following, we develop an adequate econometric strategy in an attempt to answer these questions
In addition to the DGMM panel estimates obtained from the above procedure (DGMMP), for purposes of comparison, we present various estimates for simple pooled cross-sectional OLS (POLS), pooled OLS with common time-varying fixed effects (POLS-T), a two-way fixed-effects model (FE), and a standard dynamic DGMM panel regression that only accounts for the dynamic panel bias (DGMM-S) (i.e., dealing with the potential inconsistent estimation of the lagged dependent variable gi,t−1 on the right-hand side of Equation (1), but leaving the weak exogenous covariates Xi,t unaddressed)
Summary
According to the engine of growth hypothesis (or Kaldor’s growth law), the manufacturing sector plays an essential role in contributing to economic growth and sustainable development [1,2,3]. Szirmai [6] elaborates on the supportive arguments that industrialization is the main engine of growth and summarizes the features of the manufacturing sector that contribute to the long-run growth of an economy. This growth-driven role of the manufacturing sector is especially important among the various groups of developing countries. Manufacturing has typically been a growth engine in developing countries in
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