Does industrialisation increase economic growth? : evidence from upper-middle income countries and the implications for South Africa

Abstract

In a world that is rapidly changing through massive improvements in technology and innovation, many developing countries find themselves with a trade-off as to whether to pursue industrialisation or not. Industrialisation and de-industrialisation are referred to as changes in the share of the manufacturing sector in GDP and/or employment (Tregenna, 2011). In the past, many countries have successfully integrated various industrialisation policies into their policy frameworks, which saw their economies grow, increasing the standard of living of the population. Industrialisation is typically in the form of either export-led or import-substitution policy, with each having contrasting ways of achieving the same goal – economic growth and development. The current paper employs both statistical and case study analyses in attempting isolate the effect manufacturing has on economic growth at both the aggregate and individual country level. The results would suggest that increases in manufacturing no longer have the significant growth-enhancing effects as detailed throughout history. However, through a detailed analysis of different factors and policies which contributed to the successes or failures of other upper-middle income economies such as Brazil, Malaysia, and Turkey, we argue that South Africa has a lot to potentially gain from the re-industrialisation of the economy.