Factor Inputs and the Growth of the Manufacturing Sector among the East African Community Member States: Testing the Efficacy of the Extended Neoclassical Growth Hypothesis
Abstract
The study aims to examine the relationship between input factors and growth rates in the output of the manufacturing sector in the five East African Community (EAC) member states. The relatively small manufacturing sector's GDP contribution to the combined GDP of the EAC member nations is the driving force behind this inquiry. We evaluate the applicability of the 1992 Mankiw, Romer, and Weil neoclassical growth framework and its subsequent developments in this study. Using a linear dynamic panel model, we utilize this methodology to obtain estimations using the first difference generalized method of moments (D-GMM. The study's findings make it clear that the gross capital formation input component is essential for forecasting changes in the rate of expansion of the manufacturing sector's output. Conversely, the East African Community's member states' manufacturing sector output growth does not seem to be much impacted by variables such as adjusted population growth and human capital. Based on our research, the East African Community (EAC) member states' output fluctuations in the manufacturing sector may be partially explained by the neoclassical growth model and its expansions. This shows that the growth framework that has been chosen might not be thorough enough to provide a thorough assessment of the variables influencing the expansion of the manufacturing sector output in the EAC member nations. The findings of our study indicate that the manufacturing sector’s output growth in the EAC member states could be enhanced through the implementation of policies and programs that provide incentives for augmenting capital stocks. This can be accomplished by increasing investments from the domestic private sector as well as foreign direct investments.
Downloads
References
Adejumo, A. V., Olomola, P. A. & Adejumo, O. O. (2013). The role of human capital in industrial development: The Nigerian case (1980-2010). Modern Economy, 2013.
Almas, H. (2001). On the Causality between GDP and Health Care Ex¬penditure in Augmented Solow Growth Model (SSE/EFI Wor¬k¬ing Paper Series in Economics and Finance 423). The Economic Research Institute, Stockholm School of Economics, Sweden.
Anyanwu, J. C. (2018). Does human capital matter in manufacturing value-added development in Africa? Asian Journal of Economic Modelling, 6(3), 294-316.
Arellano, M. & Bond, S. (1991). Some tests of specification for pan¬el data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies, 58, 277-297.
Babasanya, A. O., Maku, O. E. & Amaefule, J. N. (2020). Labour Force, National Savings and the Manufacturing Sector Prod¬uc¬tiv¬ity in Nigeria. Izvestiya Journal of Varna University of Eco¬nom¬ics, 64(4), 459-473.
Behuria, P. (2019). Twenty-First Century Industrial Policy in a Small Developing Country: The Challenges of Reviving Manufacturing in Rwanda. Development and Change, 50(4), 1 033-1 062.
Choi, I (2001). Unit Root Tests for Panel Data. Journal of Inter¬na¬tio¬n¬al Money and Finance, 20, 249-272.
East African Economic Outlook. (2021). African Development Bank – Building today, a better Africa tomorrow. Retrieved from: https://www.afdb.org/en/news-keywords/african-economic-outlook-2021
Gujarati, D. (2004). Basic Econometrics (4th edition). The McGraw-Hill Companies.
Herman, E. (2020). Labor productivity and wages in the Romanian manufacturing sector. Procedia Manufacturing, 46, 313-321.
Hoeffler, A. E. (2002). The Augmented Solow Model and the African Growth Debate. Oxford Bulletin of Economics and Statistics, 64, 135-58.
Johansson, L. (2015). Does human capital create economic growth in Sub-Saharan Africa? An empirical analysis of the relationship be¬tween human capital and economic growth (bachelor thesis, Söder¬törn University, Institution of Social Sciences), Sweden. http://www.diva-ortal.org/smash/get/diva2:825381/FULLTEXT01.pd
Le, N, H., Duy, L. V. Q. & Ngoc, B. H. (2019). Effects of foreign direct investment and human capital on labor productivity: Evidence from Vietnam. The Journal of Asian Finance, Economics and Business, 6(3), 123-130.
Maddala, G. S. & Shaowen, Wu. (1999). A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test. Oxford Bul¬letin of Economics and Statistics, 61, 631-652.
Mamuneas, T. P., Savvides, S. & Stengos, T. (2006). Economic De¬vel¬opment and Human Capital. Journal of Applied Econo¬¬metrics, 21, 111-132.
Mankiw, N., Romer, D. & Weil, D. (1992). A Contribution to the Em¬pirics of Economic Growth. Quarterly Journal of Economics, 107(2), 407-437.
Nkoa, E. O. & Wujung, A. V. (2014). Does gross capital formation matter for economic growth in the CEMAC sub-region? Euro¬Economica, Danubius University of Galati, 2(33), 79-88.
Nweke, G. O., Odo, S. I. & Anoke, C. I. (2017). Effect of Capital For¬m¬a¬tion on Economic Growth in Nigeria. Asian Journal of Eco¬nomics, Business and Accounting (AJEBA), 5(1), 1-16.
Obere, A., Thuku, G. K. & Gachanja, P. (2013). The impact of popu¬la¬tion change on economic growth in Kenya. International Jour¬n¬al of Economics and Management Sciences, 2(6), 43-60
Ogundipe, A. A. & Olarewaju, F. O. (2020). Manufacturing Output and Labour Productivity: Evidence from ECOWAS. Academic Journal of Interdisciplinary Studies, 9(5), 102-102.
Okunade, S. O. (2018). Effect of labour force on manufacturing firms’ pro¬duction in Nigeria. Global Journal of Management and Busi¬ness Research, 18(1), 28-38.
Olarewaju, O. M. & Msomi, T. S. (2021). Physical capital and manu¬fac¬turing sector of Southern African Development Community’s gen¬eral insurance companies. Heliyon, 7(4), e06712.
Onwiodiokit, E. A. & Otolorin, G. F. (2021). Capital formation and eco¬nomic growth in Nigeria: An empirical re-examination. CBN Bullion, 45(2), 58-72.
Rendon, R. S. (2012). Fixed and Random Effects in Classical and Bayes¬ian Regression. Oxford Bulletin of Economics and Statistics, 75(3), 460-475.
Rumanzi, R. I., Turyareeba, D., Kaberuka, W., Mbabazize, R. N. & Ai¬no¬mugisha, P. (2021). Uganda’s Growth Determinants: A Test of the Relevance of the Neoclassical Growth Theory. Modern Eco¬no¬my, 12, 107-139.
Saba, C. & Ngepah, N. (2021). ICT diffusion, industrialization and economic growth nexus: An international cross-country ana¬lys¬is. Journal of the Knowledge Economy, 13(96), 1-40.
Solow, R. M. (1956). A Contribution to the Theory of Economic Growth. Quarterly Journal of Economics, 70(1), 65-94.
Strielkowski, W. (2019). Social impacts of smart grids: the future of the smart grids and energy market design, 1st edition, London: Elsevier, 342p, ISBN 978-012-817-770-9
Su, D. & Yao, Y. (2017). Manufacturing is the key engine of eco¬nom¬ic growth for middle-income economies. Journal of the Asia-Pacific Economy, 22(1), 47-70.
Taiwo, A., Adebayo, A. R. & Oluwaseun, O. M. (2021). The Impact of Human Capital on Industrial Development in Sub-Saharan Africa. Nigerian Studies in Economics and Management Sciences, 4(2), 28-36.
UNCTAD. (2020). Trade and development report. 2020: From Global Pandemic to Prosperity for All ?– Avoiding another Lost Decade, UN.
UNIDO. (2021). African Industrial Competitiveness Report: An over¬view of the manufacturing industry in the region. UNIDO.
Word Bank. (2021). World Development Indicators 2021, The World Bank.
Xia, Y. (2019). Assessing Chinese Manufacturing Investments in East Africa: Drivers, Challenges, and Opportunities.
Zhou, H. (2019). Population growth and industrialization. Economic In¬quiry, 47(2), 249-265.
Copyright (c) 2023 Benjamin Musiita, Leward Jeke
This work is licensed under a Creative Commons Attribution 4.0 International License.
Author (s) should affirm that the material has not been published previously. It has not been submitted and it is not under consideration by any other journal. At the same time author (s) need to execute a publication permission agreement to assume the responsibility of the submitted content and any omissions and errors therein. After submission of a revised paper in the light of suggestions of the reviewers, editorial team edits and formats manuscripts to bring uniformity and standardization in published material.
This work will be licensed under Creative Commons Attribution 4.0 International (CC BY 4.0) and under condition of the license, users are free to read, copy, remix, transform, redistribute, download, print, search or link to the full texts of articles and even build upon their work as long as they credit the author for the original work. Moreover, as per journal policy author (s) hold and retain copyrights without any restrictions.
