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Manufacturing and Economic Growth in ECOWAS Countries: A Test of Kaldor’s First Law

DOI: 10.4236/me.2018.95057, PP. 897-906

Keywords: Kaldor’s Law, Economic Growth, Manufacturing, ECOWAS

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Abstract:

Kaldor’s first growth law posits that the growth rate of an economy is positively related to the growth rate of its manufacturing sector. Since the sixties, this relationship has been examined in a large number of studies using a wide variety of data sets and econometric methods. This paper examines the validity of this law for 11 ECOWAS member countries over the period 1970-2014 by employing an Autoregressive Distributed Lag bounds test approach to cointegration and Granger causality tests. The results show that manufacturing output growth causes positively economic growth and non-manufacturing output growth, thereby providing support for Kaldor’s first growth law. The policy recommendation from the results of the study is that structural transformation in favour of industrial production activities would help to accelerate economic growth in ECOWAS countries.

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