The Nature of Economic Growth
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The Nature of Economic Growth

An Alternative Framework for Understanding the Performance of Nations

A. P. Thirlwall

This concise book, by one of the leading scholars in development economics, has been developed from a series of lectures given to masters students and will serve as an excellent introduction to the principles of growth and development theory.
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Chapter 3: Manufacturing Industry as the Engine of Growth

A. P. Thirlwall


The neoclassical approach to economic growth, and its offspring ‘new’ growth theory, are not only very supply-oriented, treating factor supplies as exogenously given, but are also very aggregative. They treat all sectors of the economy as if they are alike. They do not explicitly pick out any one sector as more important than another. In practice, however, aggregate growth will naturally be related to the rate of expansion of the sector with the most favourable growth characteristics. There is a lot of historical, empirical evidence to suggest that there is something special about industrial activity, and particularly manufacturing. There seems to be a close association across countries between the level of per capita income and the degree of industrialization, and there also seems to be a close association across countries between the growth of GDP and the growth of manufacturing industry. Countries which are growing fast tend to be those where the share of industry in GDP is rising most rapidly: the socalled ‘newly industrializing countries’ (the NICs). Is this an accident? 40 Thirlwall 02 chaps rprnt 40 28/6/07 15:02:02 Manufacturing industry as the engine of growth 41 One of the first economists to have seriously addressed this issue is the late Nicholas Kaldor, who argued in many of his writings (see Targetti and Thirlwall, 1989) that it is impossible to understand the growth and development process without taking a sectoral approach, distinguishing between increasing returns activities on the one hand (which he associated with industry) and diminishing...

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