The effect of manufacturing value added on economic growth: empirical evidence from Europe

Abstract

Purpose- The purpose of this study is to examine the impact of manufacturing on economic growth in European economies during the period of deindustrialization. Moreover, the associations between capital, labor force, and technology with economic growth have been investigated. Methodology- Econometric tests are performed based on a panel data for twenty-five of most competitive European economies for the period 1995 - 2016. To quantify the relationship between explanatory variables and economic growth, an eclectic model consists of both the Kaldor’s first law of growth and the neoclassical growth model was estimated. Findings- The result of this study revealed that the economic growth has a significantly positive association with manufacturing, labor force, and technology. The unexpected interesting result is that the association between economic growth and investment is significantly negative. Conclusion- Research stated that policy makers should invest in those policies that can enhance the growth of the manufacturing sector by increases of manufacturing productivity and increases in the manufacturing employment share to create job opportunities in this sector in order to have a sustainable, healthy and competitive economic development in future.