Manufacturing and Economic Growth in Jordan (A Test of Kaldor’s Laws)

Abstract

Purpose:  The study aims to test the applicability of “the three Kaldor’s hypotheses of growth” in the Jordanian economy, by measuring the impact of the growth of the manufacturing sector on both the real GDP and the productivity of the labour component in the industrial and non-industrial productive sectors.

Design/methodology/approach:  The three Kaldor model equations were estimated using ARDL bound test approach to test the long–term relationships between the variables, using annual time series data for the period 1990-2019, according to the reports issued by the Central Bank of Jordan and the Jordanian Department of Statistics.

Findings:  The study’s findings show a positive and significant long-term effect of the growth of the manufacturing sector on the growth of both GDP and the productivity of the labour component in the industrial and non-industrial sectors. This confirmed the validity of applying Kaldor’s hypotheses of growth to the Jordanian economy during the study period.

 Social implications: The study recommended developing a system of legislation for industrial investment to encourage the establishment of large-scale industries, and stimulate similar small- and medium-scale industries to merge taking advantage of the economies of scale. This raises the productivity of the production factors and then enhances the economic growth rates.

Originality/value: The importance of the study emerges from the fact that it deals with a vital sector, that plays an important role in growth and economic development, due to its backwards and forwards linkages with other economic sectors, and being one of the few studies that dealt with the Caldor's three hypotheses comprehensively and in the modern analytical ARDL approach.