The sectoral drivers of economic growth: A long-term view of Latin American economic perfomance

Abstract

This paper explores the long-term relationship between economic growth and the allocation of resources among sectors for a panel of 18 Latin American countries over the period 19502006. Using as high a level of disaggregation as the data allows, we use dynamic panel data analysis to calculate the elasticities of sectoral growth to overall output. This captures the strength of the linkages between sectors and gives some indication of which sectors can be considered to be ‘drivers of growth’. While it is traditionally believed that the manufacturing sector is the ‘engine of growth’, empirical results show that with the rise of the so-called ‘new economy’, a more nuanced reply is required, and that other sectors can also serve as catalysts for faster growth. In particular, we find support for the proposition that certain groups of services can also play the role of ‘leading sectors’. Pointedly, however, the results show a consistently low or negligible relationship between primary resource sectors and economic growth. These results are put in perspective of the debates on ‘deindustrialisation’ and ‘premature de-industrialisation’. The causes and the implications of this process for policies to enhance long-term growth and technological acquisition are discussed.