Manufacturing and Economic Growth in Africa: A Panel Test of Kaldor’s First Growth Law

Abstract

This paper examines the importance of the manufacturing sector for economic growth in African countries. Although many African countries have posted impressive growth performance in last one decade. A notable fact of this growth is the declining share of manufacturing in the gross domestic product (GDP). Will the contraction of the manufacturing sector hurt African economic growth in the long-run? We approach this question by testing Kaldor’s first law of economic growth using panel data for a sample of 28 African countries over the period 1981-2015. Results obtained from pooled Ordinary Least Squares, Fixed Effects, and System Generalized Method of Moments provides current evidence to support manufacturing as the engine of growth in Africa. The Fagerberg-Verspagen (1999) criteria show that despite the falling share of manufacturing in the GDP, the difference between the coefficient of manufacturing output growth and share of manufacturing in GDP is positive and significant. We conclude that de-industrialisation will adversely affect both the growth rate of the non-manufacturing sectors and of the whole economy in African countries.

Keywords: Economic growth, manufacturing, non-manufacturing, productivity, value added