Manufacturing and economic growth in Ecuador, 1990-2019: validity of Kaldor's first Law
DOI:
https://doi.org/10.62452/5g9btj68Keywords:
Kaldor, manufacturing, economic growth, ARDL, cointegrationAbstract
The economic literature, based on Kaldor's first law (1966), indicates that the manufacturing sector and the growth of an economy are positively related. Therefore, this sector stimulates economic growth. The present study aims to measure the effect of manufacturing production on economic growth, during the period 1990 to 2019, by applying Kaldor's first law (1966), to determine in the case of Ecuador, whether this relationship holds both in the short and long term. An ARDL model was used in the form of error correction, cointegration by means of the bounds test and the Granger (1969) causality test. The results show that manufacturing production has a positive and significant impact on the growth of the economy, such that a 1% increase in manufacturing increases economic growth by 0.483% and 0.695% in the short and long run, in that order. Furthermore, there is unidirectional causality between manufacturing production and economic growth. The findings support and validate Kaldor's first law (1966); therefore, the application of economic policies oriented towards this sector has a favorable impact on the growth of the economy.
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