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THE EFFECT OF MANUFACTURING VALUE ADDED ON ECONOMIC GROWTH: EMPRICAL EVIDENCE FROM EUROPE

Year 2019, Volume: 8 Issue: 2, 133 - 147, 30.06.2019

Mohammad Karami Naser Elahinia Shekoufeh Karami

https://doi.org/10.17261/Pressacademia.2019.1044

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.

Keywords

Kaldorian Approach Deindustrialization Economic Growth Manufacturing Value Added and European Economy

References

  • Ahn, S. C., and Low, S. (1996). A reformulation of the Hausman test for regression models with pooled cross-section-time-series data. Journal of Econometrics, 71(1-2), 309-319.
  • Arestis, P., Sawyer, M., and Palma, G. (2005). Markets, Unemployment and Economic Policy: Essays in Honour of Geoff Harcourt, Volume Two. Routledge.
  • Banjoko, S. A., Iwuji, I. I., and Bagshaw, K. (2012). The performance of the Nigerian manufacturing sector: A 52-year analysis of growth and retrogression (1960–2012). Journal of Asian Business Strategy, 2(8), 177-191.
  • Blomstrom, M., Lipsey, R. E., and Zejan, M. (1993). Is fixed investment the key to economic growth? (No. w4436). National Bureau of Economic Research.
  • Boltho, A., and Glyn, A. (1995). Can macroeconomic policies raise employment. Int'l Lab. Rev., 134, 451.
  • Borrus, M., and Stowsky, J. (1997). Technology policy and economic growth.
  • Bujari, A. A., and Martínez, F. V. (2016). Technological Innovation and Economic Growth in Latin America. Revista Mexicana de Economía y Finanzas (REMEF): nueva época, 11(2), 77-89.
  • Cantore, N., Clara, M., Lavopa, A., and Soare, C. (2017). Manufacturing as an engine of growth: Which is the best fuel?. Structural Change and Economic Dynamics, 42, 56-66.
  • Chakravarty, S., and Mitra, A. (2009). Is industry still the engine of growth? An econometric study of the organized sector employment in India. Journal of Policy Modeling, 31(1), 22-35.
  • De Long, J. B., and Summers, L. H. (1991). Equipment investment and economic growth. The Quarterly Journal of Economics, 106(2), 445-502.
  • Dhéret, C., and Morosi, M. (2014). Towards a New Industrial Policy for Europe. EPC Issue Paper No. 78, November 2014.
  • Dragutinović, D., Filipović, M., and Cvetanović, S. (2005). The theory of economic growth and development. Ekonomski fakultet Beograd.
  • Dritsakis, N., Varelas, E., and Adamopoulos, A. (2006). The main determinants of economic growth: An empirical investigation with Granger causality analysis for Greece. European Research Studies Journal, 9(3-4), 47-58.
  • Evangelista, E., Pianta, M., and Perani, G. (1996). The dynamics of innovation and employment: an international comparison. STI review, 18, 67-93.
  • Fagerberg, J., and Verspagen, B. (1999). Modern Capitalism in the 1970s and 1980s., table 9.1, Iin M. Setterfield ed., Growth, Employment and Inflation.
  • Fagerberg, J., and Verspagen, B. (2002). Technology-gaps, innovation-diffusion and transformation: an evolutionary interpretation. Research policy, 31(8-9), 1291-1304.
  • Falk, M. (2009). High-tech exports and economic growth in industrialized countries. Applied Economics Letters, 16(10), 1025-1028.
  • Firth, L., and Mellor, D. (1999). The impact of regulation on innovation. European Journal of Law and economics, 8(3), 199-205.
  • Gani, A. (2009). Technological achievement, high technology exports and growth. Journal of Comparative International Management, 12(2).
  • Greene, W. (2004). The behaviour of the maximum likelihood estimator of limited dependent variable models in the presence of fixed effects. The Econometrics Journal, 7(1), 98-119.
  • Greene, W. H. (2008). The econometric approach to efficiency analysis. The measurement of productive efficiency and productivity growth, 1(1), 92-250.
  • Gujarati, D. N., and Porter, D. (2009). Basic Econometrics. McGraw-Hill/Irwin.
  • Herman, E. (2016). The importance of the manufacturing sector in the Romanian economy. Procedia Technology, 22, 976-983.
  • Ibrahim, W., and Okunade, A. S. (2015). Analysis of Foreign and Domestic Investment on Economic Growth in Nigeria (1980-2013). Artha-Journal of Social Sciences, 14(4), 41-58.
  • Im, K. S., Pesaran, M. H., and Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of econometrics, 115(1), 53-74.
  • Kaderábková, A., and Srholec, M. (2001). Structural changes in transition economies. Prague Economic Papers, 6(4), 335-351.
  • Kaldor, N. (1966). Marginal productivity and the macro-economic theories of distribution: comment on Samuelson and Modigliani. The Review of Economic Studies, 33(4), 309-319.
  • Kathuria, V., and Natarajan, R. R. (2013). Is manufacturing an engine of growth in India in the post-nineties?. Journal of South Asian Development, 8(3), 385-408.
  • Kathuria, V., Raj, R. S., and Sen, K. (2013). Productivity measurement in Indian manufacturing: A comparison of alternative methods. Journal of Quantitative Economics, 11(1/2), 148-179.
  • Kolmakov, V. V., Polyakova, A. G., and Shalaev, V. S. (2015). An analysis of the impact of venture capital investment on economic growth and innovation: evidence from the USA and Russia. Economic Annals, 60(207), 7-37.
  • Kutner, M. H., Nachtsheim, C. J., Neter, J., and Li, W. (2005). Applied linear statistical models
  • Lall, S. (2000). The Technological structure and performance of developing country manufactured exports, 1985‐98. Oxford development studies, 28(3), 337-369.
  • Levin, A., Lin, C. F., and Chu, C. S. J. (2002). Unit root tests in panel data: asymptotic and finite-sample properties. Journal of econometrics, 108(1), 1-24.
  • Libanio, G., and Moro, S. (2006, December). Manufacturing industry and economic growth in Latin America: A Kaldorian approach. In Second Annual Conference for Development and Change.
  • Maddala, G. S., and Wu, S. (1999). A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and statistics, 61(S1), 631-652.
  • Nasreen, S., Anwar, S., and Waqar, M. Q. (2015). Institutions, investment and economic growth: A cross-country and panel data study. The Singapore Economic Review, 60(04), 1550061.
  • Naudé, W., Szirmai, A., and Haraguchi, N. (2016). Structural transformation in Brazil, Russia, India, China and South Africa (BRICS) (No. 016). United Nations University-Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  • OYATI, E. (2010). The Relevance, Prospects and the Challenges of the Manufacturing Sector in Nigeria. Department of Civil Technology, Auchi Polytechnic.
  • PAVELESCU, F. M. (2008). Gross capital formation and economic growth during early 2000’s in EU-member and candidates states. Romania, 11(12.17), 0-48.
  • Rowthorn, R., and Ramaswamy, R. (1997). Growth, trade and deindustrialization. In IMF Working Paper, WP/97/42. IMF Washington DC.
  • Seyfried, W. (2011). Examining the relationshi p between employment and economic growth in the ten largest states. Southwestern Economic Review, 32, 13-24.
  • Solow, R. M. (1956). A contribution to the theory of economic growth. The quarterly journal of economics, 70(1), 65-94.
  • Srholec, M. (2007). High-tech exports from developing countries: A symptom of technology spurts or statistical illusion?. Review of World Economics, 143(2), 227-255.
  • Stirböck, C. (2002). Relative Specialisation of EU Regions: An Econometric Analysis of Sectoral Gross Fixed Capital Formation.
  • Su, D., and Yao, Y. (2017). Manufacturing as the key engine of economic growth for middle-income economies. Journal of the Asia Pacific Economy, 22(1), 47-70.
  • Swane, A., and Vistrand, H. (2006). Jobless growth in Sweden? A descriptive study. Unpublished Master’s Thesis, Stockholm School of Economics, Stockholm.
  • Szirmai, A. (2012). Industrialisation as an engine of growth in developing countries, 1950–2005. Structural change and economic dynamics, 23(4), 406-420.
  • Szirmai, A., and Verspagen, B. (2015). Manufacturing and economic growth in developing countries, 1950–2005. Structural Change and Economic Dynamics, 34, 46-59.
  • Tvaronavičius, V., and Tvaronavičiene, M. (2008). Role of fixed investments in economic growth of country: Lithuania in European context. Journal of Business Economics and Management, 9(1), 57-64.

Year 2019, Volume: 8 Issue: 2, 133 - 147, 30.06.2019

Mohammad Karami Naser Elahinia Shekoufeh Karami

https://doi.org/10.17261/Pressacademia.2019.1044

Abstract

References

  • Ahn, S. C., and Low, S. (1996). A reformulation of the Hausman test for regression models with pooled cross-section-time-series data. Journal of Econometrics, 71(1-2), 309-319.
  • Arestis, P., Sawyer, M., and Palma, G. (2005). Markets, Unemployment and Economic Policy: Essays in Honour of Geoff Harcourt, Volume Two. Routledge.
  • Banjoko, S. A., Iwuji, I. I., and Bagshaw, K. (2012). The performance of the Nigerian manufacturing sector: A 52-year analysis of growth and retrogression (1960–2012). Journal of Asian Business Strategy, 2(8), 177-191.
  • Blomstrom, M., Lipsey, R. E., and Zejan, M. (1993). Is fixed investment the key to economic growth? (No. w4436). National Bureau of Economic Research.
  • Boltho, A., and Glyn, A. (1995). Can macroeconomic policies raise employment. Int'l Lab. Rev., 134, 451.
  • Borrus, M., and Stowsky, J. (1997). Technology policy and economic growth.
  • Bujari, A. A., and Martínez, F. V. (2016). Technological Innovation and Economic Growth in Latin America. Revista Mexicana de Economía y Finanzas (REMEF): nueva época, 11(2), 77-89.
  • Cantore, N., Clara, M., Lavopa, A., and Soare, C. (2017). Manufacturing as an engine of growth: Which is the best fuel?. Structural Change and Economic Dynamics, 42, 56-66.
  • Chakravarty, S., and Mitra, A. (2009). Is industry still the engine of growth? An econometric study of the organized sector employment in India. Journal of Policy Modeling, 31(1), 22-35.
  • De Long, J. B., and Summers, L. H. (1991). Equipment investment and economic growth. The Quarterly Journal of Economics, 106(2), 445-502.
  • Dhéret, C., and Morosi, M. (2014). Towards a New Industrial Policy for Europe. EPC Issue Paper No. 78, November 2014.
  • Dragutinović, D., Filipović, M., and Cvetanović, S. (2005). The theory of economic growth and development. Ekonomski fakultet Beograd.
  • Dritsakis, N., Varelas, E., and Adamopoulos, A. (2006). The main determinants of economic growth: An empirical investigation with Granger causality analysis for Greece. European Research Studies Journal, 9(3-4), 47-58.
  • Evangelista, E., Pianta, M., and Perani, G. (1996). The dynamics of innovation and employment: an international comparison. STI review, 18, 67-93.
  • Fagerberg, J., and Verspagen, B. (1999). Modern Capitalism in the 1970s and 1980s., table 9.1, Iin M. Setterfield ed., Growth, Employment and Inflation.
  • Fagerberg, J., and Verspagen, B. (2002). Technology-gaps, innovation-diffusion and transformation: an evolutionary interpretation. Research policy, 31(8-9), 1291-1304.
  • Falk, M. (2009). High-tech exports and economic growth in industrialized countries. Applied Economics Letters, 16(10), 1025-1028.
  • Firth, L., and Mellor, D. (1999). The impact of regulation on innovation. European Journal of Law and economics, 8(3), 199-205.
  • Gani, A. (2009). Technological achievement, high technology exports and growth. Journal of Comparative International Management, 12(2).
  • Greene, W. (2004). The behaviour of the maximum likelihood estimator of limited dependent variable models in the presence of fixed effects. The Econometrics Journal, 7(1), 98-119.
  • Greene, W. H. (2008). The econometric approach to efficiency analysis. The measurement of productive efficiency and productivity growth, 1(1), 92-250.
  • Gujarati, D. N., and Porter, D. (2009). Basic Econometrics. McGraw-Hill/Irwin.
  • Herman, E. (2016). The importance of the manufacturing sector in the Romanian economy. Procedia Technology, 22, 976-983.
  • Ibrahim, W., and Okunade, A. S. (2015). Analysis of Foreign and Domestic Investment on Economic Growth in Nigeria (1980-2013). Artha-Journal of Social Sciences, 14(4), 41-58.
  • Im, K. S., Pesaran, M. H., and Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of econometrics, 115(1), 53-74.
  • Kaderábková, A., and Srholec, M. (2001). Structural changes in transition economies. Prague Economic Papers, 6(4), 335-351.
  • Kaldor, N. (1966). Marginal productivity and the macro-economic theories of distribution: comment on Samuelson and Modigliani. The Review of Economic Studies, 33(4), 309-319.
  • Kathuria, V., and Natarajan, R. R. (2013). Is manufacturing an engine of growth in India in the post-nineties?. Journal of South Asian Development, 8(3), 385-408.
  • Kathuria, V., Raj, R. S., and Sen, K. (2013). Productivity measurement in Indian manufacturing: A comparison of alternative methods. Journal of Quantitative Economics, 11(1/2), 148-179.
  • Kolmakov, V. V., Polyakova, A. G., and Shalaev, V. S. (2015). An analysis of the impact of venture capital investment on economic growth and innovation: evidence from the USA and Russia. Economic Annals, 60(207), 7-37.
  • Kutner, M. H., Nachtsheim, C. J., Neter, J., and Li, W. (2005). Applied linear statistical models
  • Lall, S. (2000). The Technological structure and performance of developing country manufactured exports, 1985‐98. Oxford development studies, 28(3), 337-369.
  • Levin, A., Lin, C. F., and Chu, C. S. J. (2002). Unit root tests in panel data: asymptotic and finite-sample properties. Journal of econometrics, 108(1), 1-24.
  • Libanio, G., and Moro, S. (2006, December). Manufacturing industry and economic growth in Latin America: A Kaldorian approach. In Second Annual Conference for Development and Change.
  • Maddala, G. S., and Wu, S. (1999). A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and statistics, 61(S1), 631-652.
  • Nasreen, S., Anwar, S., and Waqar, M. Q. (2015). Institutions, investment and economic growth: A cross-country and panel data study. The Singapore Economic Review, 60(04), 1550061.
  • Naudé, W., Szirmai, A., and Haraguchi, N. (2016). Structural transformation in Brazil, Russia, India, China and South Africa (BRICS) (No. 016). United Nations University-Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  • OYATI, E. (2010). The Relevance, Prospects and the Challenges of the Manufacturing Sector in Nigeria. Department of Civil Technology, Auchi Polytechnic.
  • PAVELESCU, F. M. (2008). Gross capital formation and economic growth during early 2000’s in EU-member and candidates states. Romania, 11(12.17), 0-48.
  • Rowthorn, R., and Ramaswamy, R. (1997). Growth, trade and deindustrialization. In IMF Working Paper, WP/97/42. IMF Washington DC.
  • Seyfried, W. (2011). Examining the relationshi p between employment and economic growth in the ten largest states. Southwestern Economic Review, 32, 13-24.
  • Solow, R. M. (1956). A contribution to the theory of economic growth. The quarterly journal of economics, 70(1), 65-94.
  • Srholec, M. (2007). High-tech exports from developing countries: A symptom of technology spurts or statistical illusion?. Review of World Economics, 143(2), 227-255.
  • Stirböck, C. (2002). Relative Specialisation of EU Regions: An Econometric Analysis of Sectoral Gross Fixed Capital Formation.
  • Su, D., and Yao, Y. (2017). Manufacturing as the key engine of economic growth for middle-income economies. Journal of the Asia Pacific Economy, 22(1), 47-70.
  • Swane, A., and Vistrand, H. (2006). Jobless growth in Sweden? A descriptive study. Unpublished Master’s Thesis, Stockholm School of Economics, Stockholm.
  • Szirmai, A. (2012). Industrialisation as an engine of growth in developing countries, 1950–2005. Structural change and economic dynamics, 23(4), 406-420.
  • Szirmai, A., and Verspagen, B. (2015). Manufacturing and economic growth in developing countries, 1950–2005. Structural Change and Economic Dynamics, 34, 46-59.
  • Tvaronavičius, V., and Tvaronavičiene, M. (2008). Role of fixed investments in economic growth of country: Lithuania in European context. Journal of Business Economics and Management, 9(1), 57-64.
There are 49 citations in total.

Details

Primary Language English
Subjects Finance
Journal Section Articles
Authors

Mohammad Karami This is me 0000-0003-1903-828X

Naser Elahinia This is me 0000-0002-7280-8872

Shekoufeh Karami This is me 0000-0003-1006-3032

Publication Date June 30, 2019
Published in Issue Year 2019 Volume: 8 Issue: 2

Cite

APA Karami, M., Elahinia, N., & Karami, S. (2019). THE EFFECT OF MANUFACTURING VALUE ADDED ON ECONOMIC GROWTH: EMPRICAL EVIDENCE FROM EUROPE. Journal of Business Economics and Finance, 8(2), 133-147. https://doi.org/10.17261/Pressacademia.2019.1044
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