Manufacturing as a Growth Escalator in Low and Middle Income Countries

Two competing explanations are offered for the recent structural dynamics in developing countries. For traditionalists, structural transformation implies an inverted U-shaped trajectory for manufacturing share. However, this is not the case in the new view where a knowledge driven economy can bypass the intermediate stage of manufacturing. The empirical evidence from 52 countries covering 1990 to 2013, seems to favor the old view. The increasing share of services decreases the growth rate of per capita national income. In contrast, manufacturing acts as a growth escalator. Though the magnitude of elasticity of per capita income with respect to both manufacturing and services is less than unity the influences are statistically significant. These findings withstand the usual robustness tests and do not seem to reflect reverse causality. Together these findings help explain the phenomena of jobless growth experienced by many countries.