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Manufacturing as an Engine of Growth

In:

Submitted By usk13f
Words 3085
Pages 13
Full name: Usman Shahid Khan.
Student ID: 257670.
Course Title: Economics of Developing Countries II.
Course Code: 153400109/1.
Marker’s Name: Dr. Sahar Taghdisi Rad.

Degree: BSc Economics (Year 3).
Essay Question: Is the rapid growth of manufacturing a necessary condition for successful economic development?

Assignment: 2.
Word Count: 2486.

Introduction

The consensus view amongst most economists is regarding the vitality of the manufacturing sector; with Nicholas Kaldor arguing that it is the ‘engine of growth’ for an economy. Kaldor discussed that in a poor country’s initial developmental stage, the agricultural sector will play a crucial role, mainly in providing a surplus for growth. But for the country to become developed and rich, there will be no substitution to the development of the manufacturing sector (Kaldor, 1967). “Since the industrial revolution in the eighteenth century manufacturing has been considered to be the main engine of economic growth and development. In development theory, structural change was associated specifically with a shift of resources from the primary sector to the manufacturing sector” (Szirmai, 2011; 5). Kaldor referred to this structural change in a similar way as a “characteristic of the transition from immaturity to maturity” (Kaldor, 1967; 7).

Why is manufacturing considered to be so important for development? Why might a poor country want a large manufacturing sector? Majority of this essay will attempt to answer these questions using ‘Kaldor’s Growth Laws’ and Thirlwall’s ‘Balance of Payments Constraint’ model. Later on I will discuss empirical evidence regarding countries’ importance, and in some cases, unimportance of the manufacturing sector for their development, briefly discussing which, and why, alternative paths were taken.

Kaldor’s Growth Laws

In his inaugural lecture at the

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