Monday, June 18, 2018

What Theory and International Experience Suggest about the Role of Manufacturing in Good Employment Growth for South Africa

Research Report, Employment Growth & Development Initiative, Human Sciences Research Council

Although econometric evidence is not very strong, there seems no reason to doubt that parts of the manufacturing sector have been drivers of growth in many countries. Much microeconomic evidence attests to technological progress within manufacturing and a considerable spillover to other sectors. This spillover may be direct (manufacturing produces machinery and equipment that raise productivity in other sectors) or indirect (the accumulation of people with the skills to innovate, adapt and otherwise improve available technologies helps other sectors when they draw on such skills themselves). The reasonably high marginal output-capital ratios of most countries achieving fast growth episodes also provide evidence of manufacturing’s contribution. Nearly all of the growth acceleration success stories of the last half century have relied on strong industrial policies, and most have focused much of that policy attention on manufacturing. However, the relative role of manufacturing in growth promotion may have fallen in many countries over the last few decades. Perhaps the main reason is the information revolution, which appears to be as capable of raising productivity in many service sectors as it is in manufacturing and whose spread clearly depends on various services. Regardless of the reason, much has been learned about what makes a sector a growth driver. Whatever sector can contribute to growth through its role in advancing technologies, especially technology that is favourable to employment creation, deserves the same policy attention as manufacturing has received from governments geared to achieving fast and healthy growth.

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