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Manufacturing Industry and Economic Growth in Latin America: A Kaldorian Approach

By Gilberto Libanio | Fall 2006

This paper discusses the importance of manufacturing industry for the growth trajectories of developing countries from a Kaldorian perspective, with particular emphasis on the case of Latin America. After three decades of expressive growth rates in the postwar period, the region has experienced twenty years of very low growth. Most of the countries in the region have since the late eighties undertaken important processes of trade and financial liberalization, but this has not yet been effective in delivering the high growth rates observed in the “golden age”. This essay intends to address the growth performance of Latin America during the period of reforms by discussing and testing Kaldor’s first and second “growth laws”. The first law states that “manufacturing is the engine of growth”, whereas the second law (also known as Verdoorn’s Law) asserts that there is a positive causal relationship between output and labor productivity in manufacturing, derived from static and dynamic increasing returns to scale. This paper provides estimations of the first and second of Kaldor’s laws using panel data for a sample of the seven largest economies in Latin America during the period 1985-2001. Our estimation results appear to support Kaldor’s views on the importance of manufacturing industry for economic growth.

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Read More: Development, Jobs, Trade, Americas

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