Structural change and employment growth in India: reinterpreting “Manufacturing as an Engine of Growth”

Abstract

PurposeThe present paper aims to highlight how manufacturing expansions under conditions of increasing returns, which involve the growth of intermediate goods specializations, support advanced service employment. In addition, the increasing use of manufacturing products in services highlights additional, new service sector employment opportunities.Design/methodology/approachThis paper investigates (1) the manufacturing and service interactions and (2) the investment behaviour in manufacturing using Auto-Regressive Distributed lags (ARDL) and Vector Autoregressive (VAR) models. The models allow for different specifications to study whether investment behaviour in manufacturing supports dynamic manufacturing and service interactions.FindingsThe results underpin how Kaldorian manufacturing as an engine of growth is still relevant in Indian growth and is key to achieving higher advanced employment, export-orientation and services and manufacturing nexus outcomes. What matters, though, is that manufacturing investments are to be guided mainly by intermediate goods specializations. The slowdown of these specializations, explaining the slowdown of manufacturing investment, is therefore, a concern.Originality/valueA reinterpretation of manufacturing as an engine of growth in which primacy is given to investment behaviour in technical progress functions that can support the growth of specializations in manufacturing and such specialized service employment.