Economic growth and manufacturing: An analysis using Panel VAR and intersectoral linkages

This paper aims to investigate how manufacturing affects economic growth over time, especially in developing countries. We apply Panel Vector Autoregression (PVAR) for fixed effects approach, and then we estimate impulse-response functions (IRF) and forecast-error variance decomposition (FEVD) for a sample of 115 countries from 1990 to 2011. Furthermore, we apply Hirschman-Rasmussen (HR)’s Index for 29 countries for 1995, 2000, 2005 and 2010 as well as Field of Influence for this group of countries for 1995 and 2010. The main results indicate that manufacturing industry can work as “engine of growth” in developing countries. Moreover, manufacturing is the only strategic key sector in terms of driving economic growth for most developing countries in all the period analyzed. However, manufacturing has lost its relative importance in developed and developing countries in terms of linkages.