The role of manufacturing and service sectors in economic growth : an empirical study of developing countries

Abstract

Historically, manufacturing has played a key role in the economic development of developing countries. The experience of countries like India, which invested in services, and the failure of industrialization in Africa and Latin America have led to skepticism about the effectiveness of manufacturing to foster development. The paper examines the role of manufacturing and service sectors in economic development in the period (1950-2015). It presents raw data from 50 countries, 10 advanced economies and 40 developing countries. The results of the empirical analysis are in line with the manufacturing engine of growth hypothesis. The share of manufacturing of GDP is positively related to economic growth and this effect is more pronounced for the poorer countries, no such effects were found for services. The analysis of the role of manufacturing and service sectors in periods of growth acceleration show that the effects of manufacturing are particularly pronounced in periods of growth acceleration. The tentative conclusion is that manufacturing is especially important in periods of accelerated growth. Services also play a role in growth accelerations, but less important than manufacturing.