Manufacturing and Economic Growth in Selected MENA Countries: A Kaldorian Approach

The empirical literature on Kaldor’s laws includes very few studies applied to the Middle East and North Africa. Those that examine the role of manufacturing in the growth process in the context of the region are almost nonexistent. This paper fills the gap and investigates the role of manufacturing growth in selected Middle Eastern and North African countries using panel data analysis from 2007 to 2019. The study tests Kaldor’s three laws to identify the role of manufacturing in economic growth. The first law of Kaldor indicates that the growth rate of the manufacturing sector is strongly and positively related to the growth rate of the economy. The second law of Kaldor, also known as the Kaldor-Verdoorn law, shows the relationship between productivity in manufacturing and manufacturing output. The third law states that a rise in overall productivity in an economy has a positive effect on output in manufacturing. Using data from the World Development Indicators, an empirical analysis using the system generalized method of moments is performed in a sample of 13 Middle Eastern and North African countries. The results provide strong support for the three laws in the Middle East and North Africa, demonstrating that output growth in the manufacturing sector is critical for generating economic growth and increasing productivity.