The role of manufacturing on Iran's economic growth: Divisa’s Logarithmic Index Method

Document Type : Original Article

Authors

1 Associate Professor in Economics, Department of Economics, Allameh Tabataba'i University

2 Asistant Professor in Economics, Department of Economics, Allameh Tabataba'i University

3 Master of Economics , Department of Economics, Allameh Tabataba'i University

Abstract

This article discusses the role of manufacturing in the economic growth of Iran using the logarithmic mean Divisia index (LMDI) method. The study identifies various drivers of industrialization and their impact on growth, including structural changes (productivity of labor and employment share in industrial factories) and employment scale. The LMDI method is used to analyze with a dataset from Iranian provinces between 1381 and 1399. The results show that industrialization has a positive and significant effect on economic growth, with structural changes having a greater impact than employment scale. The study highlights the importance of sustainable industrial development for economic growth in Iran.

Keywords


Acevedo, A., Mold, A., & Perez Caldentey, E. (2009). The Analysis of ‘Leading Sectors’: A Long term view of 18 Latin American economies.
Ali, S., Yusop, Z., Kaliappan, S. R., & Chin, L. (2020). Dynamic common correlated effects of trade openness, FDI, and institutional performance on environmental quality: evidence from OIC countries. Environmental Science and Pollution Research, 27(11), 11671-11682.
Arain, H., Han, L., & Meo, M. S. (2019). Nexus of FDI, population, energy production, and water resources in South Asia: a fresh insight from dynamic common correlated effects (DCCE). Environmental Science and Pollution Research, 26, 27128-27137.
Araujo, B., Bogliacino, F., & Vivarelli, M. (2009). The Role of'Skill Enhancing Trade'in Brazil: Some Evidence from Microdata.
Atesoglu, H. S. (1993). Manufacturing and economic growth in the United States. Applied Economics, 25(1), 67-69.
Attiah, E. (2019). The role of manufacturing and service sectors in economic growth: an empirical study of developing countries. European Research Studies Journal, 22(1), 112-127.
Bautista, A. D. (2003). México´ s Industrial Engine of Growth: Cointegration and Causality. Revista Momento Economico, (126).
Beheshti, B.B., &  Sadighnia, R. (2006). Testing Kaldor’s Engine of Growth Hypothesis in Iran's Economy 1338-1379. Iranian Journal of Economic Research, 8(28), 39-60. (in Persian)
Cantore, N., Clara, M., Lavopa, A., & Soare, C. (2017). Manufacturing as an engine of growth: Which is the best fuel?. Structural Change and Economic Dynamics, 42, 56-66.
Chenery, H. B., Robinson, S., Syrquin, M., & Feder, S. (1986). Industrialization and growth (p. 175). New York: Oxford University Press.
Chudik, A., & Pesaran, M. H. (2015). Common correlated effects estimation of heterogeneous dynamic panel data models with weakly exogenous regressors. Journal of econometrics, 188(2), 393-420.
Di Meglio, G., & Gallego, J. (2022). Disentangling services in developing regions: A test of Kaldor's first and second laws. Structural Change and Economic Dynamics, 60, 221-229.
Diao, X., McMillan, M., & Rodrik, D. (2017). The Recent Growth Boom in Developing Economies: A Structural Change Perspective. No. w23132, National Bureau of Economic Research.
Diao, X., McMillan, M., & Rodrik, D. (2019). The recent growth boom in developing economies: A structural-change perspective. Springer International Publishing, 281-334.
Ditzen, J. (2016). xtdcce: Estimating dynamic common correlated effects in Stata. The Spatial Economics and Econometrics Centre (SEEC), 1601.
Felipe, J., Leon-Ledesma, M., Lanzafame, M., & Estrada, G. (2007). Sectoral engines of growth in developing Asia: stylized facts and implications. Malaysian Journal of Economic Studies, 46(46),107-133.
Gabriel, L. F., & de Santana Ribeiro, L. C. (2019). Economic growth and manufacturing: An analysis using Panel VAR and intersectoral linkages. Structural Change and Economic Dynamics, 49, 43-61.
Güçlü, M. (2013). Manufacturing and regional economic growth in Turkey: A spatial econometric view of Kaldor's laws. European Planning Studies, 21(6), 854-866.
Hansen, J. D., & Zhang, J. (1996). A Kaldorian approach to regional economic growth in China. Applied Economics, 28(6), 679-685.
Haraguchi, N., Cheng, C. F. C., & Smeets, E. (2017). The importance of manufacturing in economic development: has this changed?. World Development, 93, 293-315.
Hassler, U. (2016), MH Pesaran (2015). Time series and panel data econometrics. Statistical Papers, Springer, 57(3), 859-860.
Holland, M., Vieira, F., da Silva, C., & Bottecchia, L  .(2013). Growth and exchange rate volatility: a panel data analysis. Applied Economics, 45(26), 3733-3741.
Hu, A. (2011). China in 2020: A new type of superpower. Brookings Institution Press.
Jahangard, E., mohajeri, P., &  momeni, L. (2018). A Study of Labor Force Productivity Fluctuations in Business Cycles of Iran. Journal of Economic  research review, 18(70), 125-150. (in Persian)
Kaldor N. (1960). Causes of growth and stagnation in the world economy. Cambridge University Press.
Kaldor, N. (1966). Causes of the slow rate of economic growth of the United Kingdom. (No Title)
Kaldor, N. (1967). Strategic factors in economic development. (No Title).‏
Kaldor, N. (1975). Economic growth and the Verdoorn Law--A comment on Mr Rowthorn's article. The Economic Journal, 85(340), 891-896.
Kaldor, N., & Kaldor, N. (1996). Causes of growth and stagnation in the world economy. Cambridge: Cambridge University Press, 50-77.
Kapetanios, G., Pesaran, M. H., & Yamagata, T. (2011). Panels with non-stationary multifactor error structures. Journal of econometrics, 160(2), 326-348.
Karaki, F. J. (2023). The Impact of Manufacturing, Investment, Labor Force and Technology on Economic Growth in Palestine. Journal of Economics, Finance and Accounting Studies, 5(3), 164-173.
Kruse, H., Mensah, E., Sen, K., & de Vries, G. (2023). A manufacturing (re) naissance? Industrialization in the developing world. IMF Economic Review, 71(2), 439-473.
Lavopa, A. (2011). The impact of sectoral heterogeneities in economic growth and catching up: Empirical evidence for Latin American manufacturing industries. MERIT Working Papers 2011-075, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
Lavopa, A., & Szirmai, A. (2012). Manufacturing growth, manufacturing exports and economic development, 1960-2010. In 14th ISS Conference, Brisbane, Australia.
Lewis, W. A. (1954). Economic development with unlimited supplies of labour. The Manchester School, 22(2), 139-191.
Lucas Jr, R. E. (1988). On the mechanics of economic development. Journal of monetary economics, 22(1), 3-42.
Maddison, A. (2003). The World Economy: Historical Statistics, OECD Development Centre.
Makian, S. N., & Shams Esfandabadi, A. (2018). The test of Kaldor's growth laws in Iran's economy. Economic magazine (bimonthly review of economic issues and policies), 18 (3 and 4): 71-85. (in Persian)
Marconi, N., de Borja Reis, C. F., & De Araujo, E. C. (2016). Manufacturing and economic development: The actuality of Kaldor's first and second laws. Structural Change and Economic Dynamics, 37, 75-89.
McCausland, W. D., & Theodossiou, I. (2012). Is manufacturing still the engine of growth?. Journal of Post Keynesian Economics, 35(1), 79-92.
McMillan, M. S., & Rodrik, D. (2011), Globalization, structural change and productivity growth. (No. w17143), National Bureau of Economic Research.
McMillan, M., Rodrik, D., & Sepulveda, C. (2017). Structural change, fundamentals and growth: A framework and case studies. (No. w23378), National Bureau of Economic Research.
Meo, M. S., Sabir, S. A., Arain, H., & Nazar, R. (2020). Water resources and tourism development in South Asia: an application of dynamic common correlated effect (DCCE) model. Environmental Science and Pollution Research, 27, 19678-19687.
Mijiyawa, A. G. (2017). Drivers of structural transformation: The case of the manufacturing sector in Africa. World Development, 99, 141-159.
Mongale, I. P., & Tafadzwa, M. (2018). Manufacturing Sector and Economic Growth in South Africa: A Time Series Test of Kaldor’s First Growth Law. International Conference on Public Administration and Development Alternatives.
Moyo, C., & Jeke, L. (2019). Manufacturing sector and economic growth: A panel study of selected African countries. J. Bus. Econ. Review, 4(3), 114-130.
Necmi, S. (1999). Kaldor's growth analysis revisited. Applied Economics, 31(5), 653-660.
Olamade, O., & Oni, O. (2016). Manufacturing and economic growth in Africa: A panel test of kaldor’s first growth law. Journal of Economics and Sustainable Development, 7(22), 126-140.
Opoku, E. E. O., & Yan, I. K. M. (2019). Industrialization as driver of sustainable economic growth in Africa. The Journal of International Trade & Economic Development, 28(1), 30-56.
Pasinetti, L. L. (1993). Structural economic dynamics. Cambridge University Press.
Pesaran, H., Smith, R. & Im, K. S. (1996). Dynamic linear models for heterogenous panels. In The econometrics of panel data: a handbook of the theory with applications. Dordrecht: Springer Netherlands, 145-195.
Pesaran, M. H., & Smith, R. (1995). Estimating long-run relationships from dynamic heterogeneous panels. Journal of econometrics, 68(1), 79-113.
Romer, P. M. (1986). Increasing returns and long-run growth. Journal of political economy, 94(5), 1002-1037.
Romer, P. M. (1990). Endogenous technological change. Journal of political Economy, 98(5, Part 2), S71-S102.
 Rostamzadeh, P., Samadi, A. H., &  Yadegar, Z ( 2018). Institutional Quality, Increasing Share of Private Banks and Banking System Stability in Iran. Journal of Economics and Modelling, , Shahid Beheshti University, 1(9), 143-171. (in Persian)
Saba, C. S., & Ngepah, N. (2022). ICT diffusion, industrialisation and economic growth nexus: An international cross-country analysis. Journal of the Knowledge Economy, 13(3), 2030-2069.
Shahbaz, M., Kumar, R. R., Ivanov, S., & Loganathan, N. (2017). The nexus between tourism demand and output per capita with the relative importance of trade openness and financial development: A study of Malaysia. Tourism Economics, 23(1), 168-186.
Szirmai, A., & Verspagen, B. (2015). Manufacturing and economic growth in developing countries, 1950–2005. Structural change and economic dynamics, 34, 46-59.
Szirmai, A., Naudé, W., & Alcorta, L. (2013). Introduction and overview: The past, present and future of industrialization. Pathways to industrialization in the twenty-first century: New challenges and emerging paradigms, 3-50.
Thirlwall, A. P., & Pacheco-López, P. (2017). Economics of development: theory and evidence. Bloomsbury Publishing.
Tunali, C. B., & Boru, F. (2019).The causality effects of manufacturing sector on some macroeconomic variables in Turkey. Procedia Computer Science, 158, 1109-1113.
Unido, T. (2013). Sustaining employment growth: the role of manufacturing and structural change. United Nations Industrial Development Organization Report.
Weiss, J. (2005). Export growth and industrial policy: Lessons from the East Asian miracle experience. ADBI Discussion Paper, 26.
Wells, H., & Thirlwall, A. P. (2003). Testing Kaldor's growth laws across the countries of Africa. African development review, 15(2‐3), 89-105.
Wong, K. Y., & Yip, C. K. (1999). Industrialization, economic growth, and international trade. Review of International Economics, 7(3), 522-540.
Zhao, J., & Tang, J. (2018), Industrial structure change and economic growth: A China-Russia comparison. China Economic Review, 47, 219-233.