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The differential role of manufacturing and non-manufacturing TFP growth in economic growth

Fei Jia, Xiuying Ma, Xiangyun Xu and Lijuan Xie

Structural Change and Economic Dynamics, 2020, vol. 52, issue C, 174-183

Abstract: Applying the methods of growth accounting decomposition and econometric regressions to a sample of developed economies over the period of 1970–2011, this study examines the differential role of manufacturing TFP growth and non-manufacturing TFP growth in the long-run economic growth by affecting aggregate TFP growth and by influencing capital and labour input growth. The results show that manufacturing TFP growth contributes to economic growth directly but also through the contributions of capital input growth and labour input growth indirectly. In contrast, such direct and indirect effects are not observed for non-manufacturing TFP growth. The findings suggest that despite the declining share of manufacturing in GDP, maintaining the growth of manufacturing TFP is critical for economic growth. The study provides a useful explanation of why many developed economies have started to engage in ‘reindustrialization’ strategy after the global financial crisis in 2008 and carries important policy implications.

Keywords: Manufacturing TFP; Non-manufacturing TFP; Re-industrialization; Economic growth (search for similar items in EconPapers)
JEL-codes: L52 L60 O14 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.strueco.2019.10.006

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