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:

THRESHOLD EFFECTS OF TECHNOLOGICAL

INTEGRATION

**Carlos Humberto Ortiz1
**

Javier Andrés Castro2

Erika Raquel Badillo3

**In spite of all the discussion on economic convergence, cross-country analy-
**

ses of long-run economic growth reveal a divergent pattern. According to

Madisson´s (1994) analysis over a sample of 21 countries, the ratio of the

highest GDP per capita to the lowest increased from 3 to 17 between 1820

and 1989. And Pritchett (1997) estimates that from 1870 to 1990 the ratio

of per capita income between the richest and the poorest countries increased

by a factor of five.

1

PhD. in Economics, Professor in the Department of Economics at Universidad del Va-

lle and member of the research group on Growth and Economic Development (Cali,

Colombia). E-mail: ortizc@univalle.edu.co. Address: A.A. 25360 (Cali, Colombia).

2

Master Science in Economics, Professor and Director in the Department of Economics

at Universidad del Valle and member of the research group on Growth and Econo-

mic Development (Cali, Colombia). E-mail: jacastro@univalle.edu.co. Address: A.A.

25360 (Cali, Colombia).

3

Master(c) in Economics, member of the research group on Growth and Economic De-

velopment (Cali, Colombia). E-mail: erikabad@univalle.edu.co. Address: Calle 3B N˚

96-19 Apto 601A, Barrio Meléndez, Cali (Colombia).

The authors thank Douglas Laing and José Ignacio Uribe for academic advice. Finan-

cial support from Universidad del Valle is gratefully acknowledged.

This article was received on January 2, 2009 and his publication approved on Au-

gust 23, 2009.

75

76 Cuadernos de Economía, 28(51), 2009

**This divergent pattern is also observed for more recent periods. Hall and
**

Jones (1997) found that the ratio of GDP per worker of the richest one-fifth

of countries to that of the poorest one-fifth of countries increased from 26

to 29 between 1960 and 1988. Easterly and Levine (2001) reported that

divergence of per capita income has increased from 1960 to 1992. Their

estimations in Table 1 show that the two higher fifths of countries grew

faster than middle income countries, and these in turn grew faster than the

two lower fifths.

TABLE 1.

RICH COUNTRIES GROW FASTER

Countries classified by income per Average growth of income per per-

person in 1960 son 1960 -1992

Richest fifth 2,2 %

Second richest fifth 2,6 %

Middle fifth 1,80 %

Second poorest fifth 1,2 %

Poorest fifth 1,4 %

Source: Easterly and Levine (2001).

**Hence, the world division among these three “clubs” –rich countries, midd-
**

le income countries and poor countries- is deepening. A recent World Bank

research report has confirmed this feature. Perry et al. (2006) showed

that the unimodal distribution of per capita real income across countries in

1960 has become a trimodal distribution in 1999. They showed as well that

since 1960 there has been convergence within these “clubs” but divergen-

ce amongst them. It is thus unavoidable to conclude that the income gap

between rich countries and the remainder has been widening over a long

period.

The existence of persisting growth gaps across countries was discovered by

Kaldor. In his classic paper on the patterns of development he wrote: “there

are appreciable differences in the rate of growth of labour productivity and

of total output in different societies” (Kaldor, 1961, 179). This was the

sixth pattern; the first five were as follows:

1. Output per worker shows continuing growth, with “no recorded ten-

dency for a falling rate of growth of productivity”.

2. Capital per worker shows continuing growth.

3. The rate of return on capital is steady.

4. The capital-output ratio is steady over long periods.

5. Labour and capital receive constant shares of total income.

350). even though a few previously underdeveloped economies have been able to take off. gaining an understanding of the underlying mechanisms of economic divergence is one of the most challenging tasks facing development analysts. and early deve- lopment on export services. Some twentieth-century experiences of economic development are consis- tent with this pattern.... Using data from a selected group of industrial and semi-industrial countries. Shleifer and Vishny. 1989. most underdeveloped economies ha- ve been unable to follow suit. Robinson and Syrquin (1986) analyzed the relationship between industrialization and economic growth. INDUSTRIALIZATION AND ECONOMIC GROWTH It was also Kaldor who put forward the thesis that cross-country variations of economic performance were related to industrialization: Fast rates of growth are almost invariably associated with the fast rate of growth of the secondary sector. Newly industrialized countries are among the highest . 1003).. Shleifer and Vishny also concurred to this viewpoint: Virtually every country that experienced rapid growth of productivity and living standards over the last 200 years has done so by industria- lizing. and.Industrialization and growth Carlos Ortiz. Chenery et al. Javier Castro y Erika Badillo 77 Kaldor´s patterns of development imply a world economic structure where convergence is not guaranteed. claimed to have found enough evidence to support Kaldor´s hypothesis: Is industrialization necessary to continued growth? Our models of the transformation suggest that the answer is generally yes. persistence of the Dutch disease phenomenon in the primary sector. Historical experience of economic develop- ment supports this vision. 1966. and after identifying some unlikely exceptions –poverty traps.. mainly manufacturing. Given this scenario. be they 18th-century Britain or 20th-century Korea and Japan (Murphy. (.) We conclude that –on both empirical and theoretical grounds– a period in which the share of manufacturing rises substantially is a virtua- lly universal feature of the structural transformation (Chenery et al. 7). Following this line of research. Countries that have successfully industrialized –turned to pro- duction of manufactures taking advantage of scale economies– are the ones that grew rich. this is an attribute of an intermediate stage of development (Kaldor. Chenery. 1986. Murphy.

Chenery. Shleifer and Vishny.2). In this structuralist vision. according to these authors. 1998). 1963. Amsden. 1958. Taiwan (5).1 and 12. national institutions and economic agents have to commit themselves to in- dustrialize (Hirschman. Murphy. 28(51). Thailand (18). they are. the essence of the process of development [is] to create an economic system as similar as possible to the system of the most developed economies (Leontief. Hong-Kong (6). 164). Indonesia (8). industrialization matters. changes in intermediate demands and changes in international trade. the following: changes in final demands. Robinson and Syrquin (1986) identified that along the process of industrialization some structural changes take place –economies grow up. 2009 growing economies over the period 1965-1990. 1989). Thus. are also related to in- dustrialization and economic diversification. if industrialization is the key to economic development. Singapore (1). all the lowest growing economies in the same period are non-industrialized countries (see Barro and Sala-i- Martin. China (7). According to a certain vision of economic development. our main hypothe- sis is that the causal relationship from industrialization to economic growth is non-linear: each society should endeavour to achieve some minimum level of manufacturing technological integration before it can reap the be- nefits of industrialization in economic growth. Tables 12. 1958. Brazil (19) and Yugoslavia (20). Hence. In summary. Besides. The first structural change is the well-known Engel´s . Malaysia (11). During that period. The latter analogy is based on empirical analyses of economic development. Korea (2). China and India. Japan (10). competitiveness and economic growth. The main features of this structural transformation are. the most recent successful experiences of economic take offs. That is why the advice of Leontief for de- veloping countries was the following: Given the country mix of resources and the available technologies.78 Cuadernos de Economía. 1995. On the other hand. each country is considered as some kind of living being that ought to transform itself into an adult before being able to survive and compete successfully in the world markets. Coordination problems related to this commitment are perhaps what make it so difficult to gain access to the exclusive “club” of developed economies (Hirschman. why do we observe so very few cases of successful economic take offs? Why cannot we the underdeveloped countries catch the train of progress? This paper attempts to provide an answer. 1989. a period of structural transformation is previously required in order to take advantage of the external effects of industrialization on productivity. in order of per- formance. Landes.

and its important effects on productivity (Romer 1987. their productive structures become more “roundabout” in the sense that a higher proportion of output is sold to other producers rather than to final users. Hence. the agricultural sector expands slower than the economy as a whole. 57). The following quotation is illustrative: Through import substitution and the expansion of manufactured ex- ports. it might be true that only when a country´s structural transformation is suf- ficiently advanced it might open to world markets. thus. Underlying this shift are changes in supply conditions –accumulation of skills and physical capital plus the greater availability of inter- mediate inputs– as well as economies of scale based on a growing domestic market for manufactured goods (Chenery. Robinson and Syrquin. takes place .. and under an open economy regime. Robinson and Syrquin. Matsuyama (1992) and Or- tiz (2004. become an exporter of manufactured goods and enjoy the benefits of industrialization –including higher growth rates. 1990). this phenomenon can be broke down into two parts: first. (. Several reasons can be put forward in order to explain the strong economic externalities from the manufacturing sector. technological changes within a sector that lead to a greater use of intermediate inputs (Chenery. a shift in output mix toward ma- nufacturing and other sectors that use more intermediate inputs. typically ma- nufacturing. The second structural change is what these authors refer to as input-output deepening: As countries industrialize. First. The third structural change is related to the evolution of international trade: comparative advantages change from the primary sector to the manufactu- ring sector. product diversification. Javier Castro y Erika Badillo 79 law: income elasticity of food demand is lower than 1. drive the economy along a superior path of economic develop- ment. developing countries shift away from the specialization in pri- mary products that is characteristic of early stages of development.Industrialization and growth Carlos Ortiz. whilst advantages in low-learning technological activities might lock the economy up in those activities and lead to sluggish economic growth. a country´s pattern of specialization is determined by its inherited advanta- ges. 1986. and second.. advantages in high-learning economic activities. 2008). 1986. 63). Theoretical analyses that are consistent with this vision include growth and international trade models where learning-by-doing is the growth engine.). such as those of Lucas (1988). Thus. In these models. according to the structuralist vision of economic development. Young (1991).

a small panel data set containing such a measure is used in this analysis. Second. moreo- ver. Based on Kubo’s work on cross-country comparisons of interindustrial lin- kages (Kubo. 1985). im- pinges directly on the system’s profitability (Sraffa. Japan. as producer of intermediate and capital goods. communications. de Melo. 1993). It is convenient to emp- hasize that there is nothing magical about manufacturing. It is thus convenient to test the diversification effects on economic growth by using a measure of interindustrial dependence as a proxy. Robinson and Syrquin (1986) cal- culated comparable indices of aggregate interindustrial linkages using in- formation from 30 input-output matrices of nine industrialized or semi- industrialized countries: Colombia. Kubo. Yugoslavia. 2007). Mexico.80 Cuadernos de Economía. Observations were taken for so- me years between 1950 and 1975. Israel and Norway. each country represented a different stage of structural change. Taiwan. Young. . economic diversification is directly related to production “roundaboutness”. etc. biotechnology. the productivity of the manufacturing sector. Fifth. 1991). South Korea. Rodrik. 1998. Third.– may also become leaders of economic growth (Landes. To that extent. 2009 typically in the manufacturing sector. 1990).. the continuous displacement of the technological frontier in the manufacturing sector allows the sector´s learning potential to remain high (Lucas. the manufacturing sector is characterized by intensive application of science and technology to transform intermediate goods and raw materials. the sam- ple may be thought of as being representative of the experience of economic development. According to the authors. Some words of caution are required at this point. scientific research. 28(51). 1986). 1988. SOME EMPIRICAL SUPPORT A Small Panel Data According to the analysis of structural transformation (Chenery et al. In order to do that. 1986). Turkey. other econo- mic activities requiring an intensive use of intelligence and technology – informatics. the sector´s generation of new goods and new technologies induces the appropriation and diffusion of humanity’s most important productive for- ce: scientific knowledge (Romer. Fourth. 1960) and the rate of economic growth (Rebelo. the manufacturing sector typically enjoys internal and external economies that enhance aggregate productivity (Caballero and Lyons.

i. The dependent variable is the average annual growth rate of GDP for the next 10 years (G10). The first set of included independent variables (the basic set from now on). they calculated the Leontief matrix. Growth Regressions from the Panel Data Appendix 1 is a small unbalanced panel. These authors also obtain an index of do- mestic linkages (DL) by excluding imported intermediate inputs from the input-output matrix. Using this information the growth regressions shown in Table 2 are run.Industrialization and growth Carlos Ortiz. the average investment ratio in the next decade (I10). x to heteroscedasticity –this hypothe- sis cannot be rejected at the 1 percent level– OLS estimates are corrected using White´s consistent covariance matrix. Let us decompose this expression: (L )−1 i is a 14x1 vector whose elements measure the degree of backward technological integration of the corres- ponding sectors. for the above panel of countries. ove- rall linkages (OL) and domestic linkages (DL). the average annual growth rate of . f is a 14x1 weight vector whose elements add up to 1. Finally they obtained an index of overall linkages as follows: (OL) = f (L )−1 i. the apostrophe ( ) denotes matrix transposition. where I denotes the identity matrix of the same order as matrix A. are the real per capita GDP (RGDP ). i is a 14x1 unit vector. and the power -1 denotes matrix inversion. Subse- quently. It also includes the equivalent annual growth rates of per capita GDP during 10 years (G10).e. Robinson and Syrquin. Javier Castro y Erika Badillo 81 The procedure to calculate the mentioned indices was the following. each element measures the proportion of gross output which is produced in the economy per unit value of final demand in the co- rresponding sector. Appendix 1 exhibits the data on measures of interindustrial linkages. the avera- ge schooling years in the total population over age 25 (EDU ). where the weights are taken from the representative struc- ture of the final demand vector for a semi-industrial country (see Chenery. where aij is the technical coefficient measuring the amount (in value terms) of input i which is consumed in the production process of one unit of good j. the real per capita GDP (RGDP ). where OL is a scalar. First. and the equivalent annual growth rate of population in the next decade (GN 10). 1986). The final expression (OL) is then a weighted average of these measures. the authors rearranged each matrix into 14 comparable economic sectors and calculated the matrix of technical coefficients A = [aij ]. L = I − A. the calculation is completely analogous to the previous one.

28(51). However.82 Cuadernos de Economía. These variables are thought to be robustly correlated with econo- mic growth (Levine and Renelt. the average investment ratio in the next decade (I10). The second set of independent variables contains the measures of interindustrial linkages (OL and DL). Moreover. In this second regression. and the interactive dummies (DL ∗ D70 and DL∗D70). The first regression uses as independent variables the basic set. The basic regressors different to RGDP –GN 10. and the initial level of educational attainment (EDU ). I10 and EDU – are not significant. this regression does not yield signifi- cant coefficients. and the corresponding interactive dummy (OL ∗ D70) are significant at the 1 % level and their respective coefficients exhibit the expected signs: negative for RGDP and OL ∗ D70. . These last set of variables is added in order to capture possible fixed-country effects. and the country dummies. The third set of independent variables contains the country dummies. the overall linkages measure (OL). and the GN 10 coefficient is expected to be negative because population growth di- minishes directly output per capita. the overall linkages measure (OL). notice that Colombia is taken as the reference country. the initial level of per capita GDP (RGDP ). 2009 population in the following decade (GN 10). none of the country dummies is significant. and positive for OL. and neither are they significant as a whole. the related interactive dummy (OL ∗ D70). 1992). it is likely that the 70´s oil shocks diminished the positive externalities from interindustrial linkages because oil is the most important intermediate input for the current technology. these interactive dummies are added in order to account for the downward jump of growth rates du- ring this period. the I10 coef- ficient is expected to be positive because of capital accumulation. the dummy variable for the 70´s (D70). Because the degrees of freedom are significantly reduced. Because of the oil shocks of the 70´s. The RGDP coefficient is expected to be negative because of convergence effects. the coefficient associated with the average investment rate (I10) is estimated as being negative. Thus. the country dummies were dropped in order to run the second regression. the EDU coefficient is ex- pected to be positive because of human capital accumulation.

759815 JAPAN (0.26410* 0. ∗ ∗ 5 %. but it is clearly deduced that data are not .11350* 0.87267) (-3.04883 -0. ∗ ∗ ∗1 %.43950) (3.17634 0.01976*** OL*D70 (-1.01201 DL*D70 (-1. Significance level: ∗10 %.22414*** -1.01821*** -0.98943) (-1.12088) 2.77816) (3.48737) 0.15716) (-3.88106 0.72004 0.60034 GN10 (-0.00054*** -0.67507 SOUTH KOREA (-0.91701) (5.41848) (0.17038) (-2.09695) -0.89191) (-0.08349 1.06080 -0.25776) (-4.44334) -0.05004) (0.74007 0. the GN 10 coefficient is significant at the 10 % level.00057** -0. GN 10(−).15431) (0.10917*** 0. I10(+)andEDU (+).15731) (1.02512) (0. Because of this odd feature.20117 TAIWAN (0. GROWTH REGRESSIONS FROM PANEL DATA Variable/Regression -1 -2 -3 -4 -5 -6 -0.59033) 1. t-statistics in parentheses.78782) (-1.91989) (2.44619 -4.10519*** 0.00056*** -0. In this regres- sion. the third regression is run including as regres- sor the square of the average investment rate (I10 − SQ).E.91080) (-1.30841 Note: sample = 30.09559 I10 (0.12595) (-1.08314*** OL (1.01232 -0.90385) 0.98734 -0.14380 0.26691 4.65080) (-1.Industrialization and growth Carlos Ortiz. 1.93833) (-0. Moreover.54282) -0.43667) R2 adj.43523) 1.57784 -0.64022) (-1. Javier Castro y Erika Badillo 83 TABLE 2.00252 NORWAY (0.20040) 0.66749 TURKEY (0.64091 S.12286 0.55827) (-0.65040* -0.05205** DL (0.45755 -0.05116 -0.13750 1.04882 0. Source: Own estimations.20207) -0.09231) (1.72010 0.01416 0.56345 -0.94060) (-3. 0.41788) 0.15529 1.56229) 0.80144* MEXICO (1. and the I10 coefficient is significant at the 10 % level.00966 YUGOSLAVIA (-1. The coefficient associated with the squared average investment rate (I10 − SQ) is negative and significant at the 5 % level.33805) -0.21906) (-1.00102** -0.23085*** D70 (-3.55614) -2.44688) (5.02734 0.81040) (-4.50778 -4.29897) -0.63016) -1.782443*** EDU (-0.24556) (-2.72859 0.37445* -0.11320 1.51025 CONSTANT (-0.00797** I10-SQ (-2.05202 ISRAEL (0.00111 OL-SQ (-1. estimated coefficients of all the basic independent variables obtain the expected signs: RGDP (−).75375 0. the RGDP coefficient is significant at the 1 % level.00059*** -0.45470) (-0.59489) (-4.95658) -0.10841 0.00077*** RGDP (-2.15516 1.78800) (0.43699) -0.14251 0.79414) (1.58099) (0. there is no easy explanation for this result.24285) 0.

This third regression is our preferred. Thus.84 Cuadernos de Economía. the corresponding interactive dummy variable (DL ∗ D70) is not significant. 4 %. This regression yields that the measure of domestic linkages has a positive effect on growth. 2009 consistent with accelerating effects on economic activity derived from in- vestment. 28(51). Besides. 1994). it seems that EDU behaves in the sixth regression as a proxy for OL. This exercise yields that when both measures are included. according to the second and third regressions. however. This last result is probably due to the high correlation of education (EDU ) with the overall linkages measu- re (OL): the correlation coefficient between these two variables is 78 %. 75. after all. The fifth regression was run in order to check which measure of interindus- trial linkages was best related with economic growth. the measure of educational attainment (EDU ) is significant at the 1 % level. Since the difference between the measures of overall linkages and domestic linkages is accounted for by imported intermediate inputs. the sixth regression replaces the measure of ove- rall linkages (OL) and the corresponding 70´s interactive dummy variable (OL ∗ D70). However. it yields the regression with the highest adjusted R2 . In this case. Therefore. The fourth regression was run in order to test the existence of non linear effects from overall linkages. the previous result sug- gests that commercial openness might favour economic growth if it leads to a greater economic diversification (Ortiz. . Although aggregate interindustrial linkages are better predictors of growth than domestic linkages. and the coeffi- cients of all standard variables get the expected signs. but it is only significant at the 5 % level. the associated coefficient is not statistically significant for this sample of countries. both of them included in the second regression. Why is education not significant in these regressions? A first explanation may be that this variable suffers from measurement problems. data are not contrary to the hypothesis that technological integration impinges positively on economic growth in semi-industrial and industrialized economies. The coefficients associated with the overall linkages measure (OL) and the corresponding interactive dummy variable (OL ∗ D70) preserve their signs and levels of statistical significance. by the mea- sure of domestic linkages (DL) and the corresponding interactive variable (DL ∗ D70). the overall linkages measure (OL) is significant whilst the domestic linkages measure (DL) is not. that is why the regression includes the square of the measure of overall linkages (OL − SQ).

The year 1980 was chosen mainly because information for many less developed countries and even for deve- loped countries is not available for previous years. thus. educa- tion and economic growth might depend jointly on the measure of overall linkages. Levin and Kelley. Bils and Klenow. Israel and Norway– are estimated positive and significant. thus. 4). the 1980 input-output coefficient for the whole economy (IO). the results might be subject to all sorts of potential problems of endogeneity. The coefficient associa- ted with overall linkages is estimated positive and statistically significant at all levels. the coefficients associated with some industrialized country dummies –Yugoslavia. it does not capture cross-country differences in education qua- lity. a regression is run for educational attain- ment (EDU) against the index of overall linkages (OL) and the set of coun- try dummies (Colombia is the reference country). Japan. in that order. A second possibility is that educational attainment is itself an endoge- nous variable: it may be determined by the maturity of the whole economic structure. the measure of overall linkages (OL) and the initial income level per capita (RGDP ) exhibit the highest statistical significance level. Data are not inconsistent with this hypothesis. Hence. 1989. This second possibility would imply that structural transformation imposes some education requirements (Klees.Industrialization and growth Carlos Ortiz. a previous year analysis would reduce both the sample size and the representativeness of less developed economies. . 2001. ch. If educational attainment is run against the basic set of regressors and the overall linkages measure (Appendix 2B). In Appendix 2A. three indus- trialization indices were built: the 1980 share of the manufacturing sector in GDP (IND). The data for these indices were collected from the United Nations´ National Accounts Statistics. Javier Castro y Erika Badillo 85 educational attainment (EDU ) is a quantitative index of years of education and. Since the data set is a non-balanced panel. 1994. A Cross-Country Data Set The above considerations and estimations are based on a small but repre- sentative sample of nine semi-industrial and industrial countries. Since the project aims at estimating the impact of industrialization on economic growth. Easterly. 2000. Instead of attempting to solve them. this research project focused on the analysis of a larger cross-country da- ta set of fifty two (52) countries (Appendix 3). and the 1980 input-output coefficient for the manufacturing sector (IOM AN ).

The source of GDP data is the Penn-World Table (Heston. . the average investment rate over the period (I). As in the panel data exerci- ses. 28(51). Cross-Country Growth Regressions Appendix 3 is a cross-country data base. 89 %. A basic set of independent variables is defined: the per capita real gross domestic product in 1980 (RGDP ). the project took advantage of the patterns of structural transformation that we- re examined before to postulate that the tightness of interindustrial linkages (and the degree of economic diversification) must be correlated with the manufacturing GDP share and the input-output coefficients for the who- le economy and the manufacturing sector (IN D. Taking into account the shift from panel data to cross-country analysis. A second set of variables include the three industrialization measures and the dummy variable for oil exporting countries. OLS estimates are corrected using White´s consistent cova- riance matrix. 2006). an ordering of these coefficients shows that in general highly developed eco- nomies tend to exhibit higher industrialization indices. Summers and Aten. the research pro- ject used them because there was no alternative. As education data for Burkina Faso. Cape Verde. Even though cross-country differences of product composition and relative prices may affect these coefficients (As Table 3 shows. The educational attainment variable was taken from Barro and Lee’s (1993) statistical data base. The dependent variable is the average growth rate of per capita GDP between 1980 and 2000. Using this information the growth regressions shown in Table 3 are run. in order to estimate this variable a semi-logarithmic regression of per capita GDP against time is run for each country over the period 1980-2000. the methodological approach is quite similar. On the other hand. some of these coefficients are too high for the corresponding level of development). the average rate of population over the period (GP OP ). the hypothesis of heteroscedasticity cannot be rejected at the 1 percent level.86 Cuadernos de Economía. IO and IOM AN ). and the initial educational attainment (EDU ). It contains information for 52 countries of different levels of development. Ni- geria and Oman are not available for 1980. they were estimated taking ad- vantage of the high correlation coefficient across countries between the log of educational attainment and life expectancy at birth. Hence. Since this information is not available. 2009 It would have been useful to have a direct measure of interindustrial lin- kages as in the panel data set.

660) (0.09031 IND (-1.5063 1. E.187) (-2.619238 0.0000785*** -0.125) (-2.720457*** -0. Javier Castro y Erika Badillo Source: Own estimations.5482 1.04487 -0.236) (2.0000842** -0.269996*** -1.428) (1.0000756** -0.535) (2.937) 0.334) (2.7 64.005621*** 0.804) 0.199616** GPOP (-2.491333** -0.399) 0.76364 23.5346 1.712) (-3.00402 IOMAN-SQ (2.5029 1.0000832** -0.249) (-3.8413 No.692238** 0.235) (-0.0000868*** -0.444) (0.381) (-2.459998** -0.301) (-3.873) (3.670) (0.388497 0.629) 0.133724** 0.005641*** 0.000114 I (2.5487 1.4119 0. ∗ ∗ 5 %.846) (-1.392561 0.191) (-0.330) R2 Adj.573537*** -0. 64.079) (-3.000101*** -0.321372 0.469048** -0.384) (-3.15381** 0.128855 0.451) (2.551) (-3.066) (0.389549 0.5183 0. CROSS-COUNTRY GROWTH REGRESSIONS Regression -1 -2 -3 -4 -5 -6 -7 -8 -9 -10 -11 -12 -13 0.637) (2.4158 0.650) (-0.390) (2.983) (-3.270) (3.794) -0.48583*** -5.206) (-2.259) (-2.802809*** -0.671) (2.5438 1.836) (1.180067 0.5013 1.126) (3.629536*** -0.002442 IO-SQ (1.193) (-2.157) (0.214835 1.117) (1.81512*** 23.3821 0.62484*** -1. 52 52 52 52 52 52 52 48 52 52 52 21 21 IOMAN min.040) -0.468127** -0.3993 0.2 Note: t-statistics in parentheses.352) (3. Significance level: ∗10 %.006305*** 0.097) (3.596670 0.624) (0.231) -0.976) 0.4061*** 23.128) (-2.337146 1.735566*** -0.254) (3.614943*** -0.22765 PETROL (0.615635 0.134204** 0.4 63.02668*** 24.155518** 0. Carlos Ortiz.540933* -0.289) (-3.242352 IO (-0.189) (-2.005722*** 0.704) 0.3 64.000307*** -0.222836 Log(EDU) (1.564) (2.574) -0.904) (2.097) (1.002) -0.534) (-2.61745 Constant (0.069) (1.012) (0.836) (-1. ∗ ∗ ∗1 %.4146 0.0000738** -0.607) (1.5092 0.9 63.010182 -0.574) (-3.029801 -0.359952 0.4025 0.154287*** 0.506) (0.154) (-3.150547*** 0. 1.854) (3.279) (-3.038795 -22.5439 1.468) (2.700) (-1.3896 0.682542 IOMAN (-0. 0.3783 0.92889*** 23.136336** 0. 87 .114) (-3.5398 1.282064* 0.560) (-2.3734 0.747554** 0.3854 0.344) (-2.153) (-2.TABLE 3.158934*** -0.936) (-0.004048 I-SQ (-0.439) (2.0000805*** -0.0000786*** -0.362) (3.5548 1.3822 0.076) (-3.147874** 0.000298*** RDGP Industrialization and growth (-2.949493 5.4822 S.781) (3.309) -0.604) (1.019) (-3.443019** -0.001415 IND-SQ (0.0000853** -0. Obs.151349** 0.136328** 0.480) (3.005637*** -0.173) (-2.118) (1.723) (-3.003743 0.724071*** 0.0000736*** -0.466313** -0.723701*** -0.8190 0.

The second and third regressions add the manufacturing share (IN D) as independent variable in a linear and a quadratic way. Finland. and IOM AN − SQ(+). but the corresponding es- timated coefficient is not significant. The eleventh regression is run in order to test whether the condition of oil exporter has some effect on economic growth. The fourth and fifth regressions use instead the aggregate input-output coefficient (IO) as independent variable. the result improves greatly: the estimated coeffi- cients exhibit the expected sign: RGDP (−). and all of them. The results confirmed that in this case the relationship between the manufactu- ring input-output coefficient and economic growth is linear. Argentina. the asso- ciated coefficients are not significant. Since the cross-country regressions 7 to 11 imply that economic growth is a significant convex function in the manufacturing input-output coeffi- cient (IOM AN ). the estimated coefficient is negative –as in the panel da- ta exercises. New Zealand. Canada. France. where α(< 0) is the estimated IOM AN coefficient. as in the panel data exercises. 28(51). Iceland. The ninth regression includes in the set of regressors the square of the average invest- ment rate (I −SQ). Portugal. are significant at the 5 % level.but it is not significant. The sixth and seventh regressions use the manufacturing input-output coefficient (IOMAN) as independent variable. 2009 The first regresssion includes as independent variables the basic set. Germany. Denmark. IOM AN (−). with the ex- ception of the log of education. and all of them are significant at the 1 % le- vel. Netherlands. they are excluded from the sample and the eighth regression is run for just 48 observations. Costa Rica. Our preferred estimation is regression 10. Spain. Taking into account that educational attainment is estimated for four coun- tries. in this case. for it exhibits the highest significance levels. All the estimated coefficients yield the expected signs. Cyprus. All not significant variables are drop- ped in the tenth regression. Sweden. This value points . but the associated coefficients in these regressions are not significant eit- her. this regression yields quite similar coefficients to the previous one. Mexico. Austria. The IOM AN threshold estima- tions fluctuate slightly around the value 64 (see Table 3). the quadratic expression in IOM AN –seventh regression– does yield estimated coeffi- cients which are significant at the 1 % level. and the significance levels are practically equal. I(+). Uruguay. respectively. GP OP (−). Japan.88 Cuadernos de Economía. the minimum IOM AN value is estimated as follows: −α/(2β). and β(> 0) is the estimated IOM AN 2 coefficient. Chile and Mauritius). Regressions 12 and 13 are run for the 21 higher income countries of the sample excluding oil expor- ting countries (Norway. however.

it would be absurd to claim that higher input-output coefficients due to relaxation of cost minimizing beha- viour would lead to higher economic growth. SOME CONCLUDING COMMENTS Regression analyses on a small panel data set and a larger cross-country data set are the basis for the following comments: Cross-country econometric analyses for the whole sample of countries which includes both industrialized and non-industrialized countries do not reject the hypothesis that there exists a nonlinear –quadratic and convex– rela- tionship between industrialization and economic growth. As in the panel data econometric exercises. education does seem to depend on some struc- tural factors. as in the panel data exer- cises. This analysis implies. However.Industrialization and growth Carlos Ortiz. as in the panel data econometric analysis. If this hypothesis were true it would imply that countries enjoy the benefits of industrializa- tion in economic growth after surpassing some threshold of technological integration in the manufacturing sector. and aggregate input-output coefficient (IO: positive and highly significant co- rrelation). aggregate measures of industrialization –the measure of overall lin- kages (OL) in the panel data. In these cases the econometric exercises capture mainly the dominant positive effect of industrialization on growth for sufficiently high indices of technological . that changes in IOM AN reflect changes in manufacturing technological integration. Javier Castro y Erika Badillo 89 out the relative minimum level of industrial economic integration that must be achieved before enjoying the dynamic benefits of industrialization. When the cross-country analyses are restricted to industrialized and semi- industrial countries. population growth (GP OP : negative and significant correlation). the relations- hip between industrialization and growth seems to become linear. The exercises revealed that the manufacturing input-output coef- ficient (IOM AN ) is not a better predictor of educational attainment than the aggregate input-output coefficient (IO). avera- ge investment rate (I: positive and marginally significant correlation). of course. like real GDP (RGDP : positive and significant correlation). the cross-country regressions reveal that educational attainment [log(EDU )] does not seem to be a good predictor of economic growth once one controls for manufacturing interi- ndustrial linkages (IOM AN ). as shown by the cross-country regression in Appendix 4. and the aggregate input-output coefficient (IO) in the cross-country data base– does seem to impinge positively on educational attainment levels. Thus.

second. If this hypothesis is true. Londres: Oxford University Press. J. International Comparisons of Educational At- tainment. The latter hypothesis is not rejected by the available data sets: this paper finds a strong positive correlation between education and the measures of overall linkages (OL in the panel data regressions. instead it might be determined by the degree of economic development. as seen before. mea- surement error bias due to the exclusion of education quality levels (EDU is a quantitative measure of education in years). First. It provides many more external benefits than just economic growth. for instance. R. REFERENCES Amsden. X. Barro. The com- plex relationship between education and economic growth should also be reviewed. (1989). Journal of Monetary Economics. Two likely explanations may act together to explain this result: first. R. 363-394. Economic Growth. Corollary: the convergent effect related to initial GDP per capita is overcome by divergent effects related to industrialization. education cannot be neglected. The cross-country econometric analyses yield that technological integra- tion in the manufacturing sector is highly correlated with economic growth. In whatever scenario. Barro. 32(3). and Lee. educational policies should go hand-in-hand with industrialization policies so that human capital supply matches human capital demand along the path of development. 2009 integration in the manufacturing sector (in other words. 28(51). If our hypotheses are confirmed. J. some policy recommendations would be appropriate. . and Sala-i-Martin. educational attain- ment might not be a determinant of economic growth. Second.90 Cuadernos de Economía. education is revealed as a necessary but not sufficient condition for economic growth. these analyses only capture the increasing section of the “u” relationship). New York: McGraw Hill. Economic growth is not significantly correlated with educational attainment when one controls for technological integration in the manufacturing sector. whilst aggregate technological integration is not. A. (1995). This result might imply that the manufacturing sector behaves as a leading sector. IO in the cross-country regressions). Further analyses are required in order to test the hypothesis of an indus- trialization threshold for enhancing long-run economic growth. Asia’s Next Giant. education and life expectancy at birth are highly correlated. (1993). The previous features help to explain why rich (industrialized) countries tend to grow faster in the long-run than poorer countries. government economic policies aimed at increa- sing economic growth should enhance the process of economic diversifica- tion and structural transformation.-W.

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9 81.3 2.7 2.5 48.26 1960 3.4 4.628 6.5 0.5 1.2 2.71 29.32 52.9 2. Data Set for a Panel of 138 Countries.688 6.71 16. Sources: G10: Equivalent annual growth rate of real gross domestic product per capita du- ring the 10 following years (Summers and Heston.9 60.2 0.28 36.7 51. THIRTY OBSERVATIONS G10 OL DL RGDP EDU I10 GN10 Country Year ( %) ( %) ( %) (1985 US$) (Year) ( %) ( %) 1953 0. 1991).76 2.39 28.77 17.90 93.0 1.92 1958 4.48 92.3 1.19 Mexico 1970 3.3 3. and DL: Domestic Linkages (Kubo.21 87.9 55.8 58.4 3.224 1.4 1.39 69.9 47.32 18.001 3.125 7.Industrialization and growth Carlos Ortiz.62 1963 3.78 87.5 61.6 3.9 51.55 34.5 42.21 South Korea 1970 5.3 0.4 52.4 0.884 2.4 2.2 1.55 63.27 1970 3.53 68.22 92.815 5.34 21.377 3.6 1.6a 82. Ro- binson and Syrquin (1986).387 2..28 6.9 1.3 59.87 2.65 26.69 1973 5.3 88.88 Norway 1961 3.8 4.51 13.2 1.88 32.6 0.701 6.126 2.1 7.21 85.3 2.5 2.4 2.97 1960 9.55 Turkey 1968 3.041 3.82 89.2 47.97 1955 8. de Melo. OL: Overall linkages.0 53.49 94. RGDP : Real gross domestic product per capita in 1985 constant prices (Summers and Heston. Robinson.96 1972 3.05 18.44 89.78 56. this figure was corrected from Kubo.50 1953 2.5 2.03 1972 1. .13 1975 1.45 21.21 1962 5.50 16.5 82.181 1.56 Note: Using Kubo’s estimation (1985).7 6. 1991).1 2.673 5.5 54.8 3.126 5.8 2.99 30.56 33. J.62 94.62 59.71 66.1 46.59 Taiwan 1966 7.709 4. 1991).3 2.71 82.6 52.99 22.80 24.9 1.35 1950 2. Javier Castro y Erika Badillo 93 APPENDIX 1 UNBALANCED PANEL DATA NINE COUNTRIES. HU M AN xx: average schooling years in the total population over age 25).62 Israel 1965 4.84 23.575 6. GN 10: Equivalent annual growth rate of population during 10 years (calculated from Summers and Heston.80 34.643 7.78 1969 4.89 Yugoslavia 1966 4.8 54. Syrquin.97 79. 1993. I10: Average Investment-to-GDP ratio during 10 years (calculated from Summers and Heston.55 1970 3.19 1963 7.9 52.2 67.865 5. Y.3 3.6 50.09 1971 6. and M.23 22.9 3.05 Colombia 1966 3.7 55.0 37.73 78.133 5.6 852 2.324 4. de Melo.92 76.3 40.77 29.9 2.2 1.20 65. 1991).58 54.8 5.3 1.68 83.061 2.5 1.7 0.6 2.26 89.8 2.31 21.099 4.6 7.34 1973 1.61 77.58 1956 4.7 3.72 23.15 69.7 2.4 3.7 1.04 Japan 1965 6.7 1.76 28. S.70 106.5 5.83 35.07 33.41 18.2 4.06 1961 7.612 2.7 40.7 53.4 2.0 4.80 50.76 29.6 2.17 101.4 2. 1986).722 4.755 3.2 0.9 2.06 37.9 55.6 3. EDU : Educatio- nal Attainment (Barro and Lee.

23452 F-statistic 40. EDU : Educatio- nal Attainment (Barro and Lee.126990 0. this figure was corrected from Kubo.E.703573* 0.1396 MEX -0. of regresión 0.835778 0.212229 0. 1991). 2009 APPENDIX 2A EDUCATION REGRESSION FROM PANEL DATA Dependent Variable: EDU Method: Least Squares Sample: 30 White Heteroskedasticity-Consistent Standard Errors and Covariance Variable Coefficient Std. Ro- binson and Syrquin (1986).94 Cuadernos de Economía.400333 Adjusted R-squared 0.84705 Durbin-Watson stat.D.538425 0.216034 Log likelihood -16. C -1.861372 S.383256 -1. Syrquin. de Melo. and M..509128 Akaike info criterion 1.563419 0.0019 JAP 1.112144*** 0.072320 0.0000 R-squared 0. Y.184232 Schwarz criterion 2. 1993. de Melo.000110 0.355881 0. Error t-Statistic Prob.0000 NOR 2.925185 S.492092 3.291506 7.8438 TAI -0.748968 Sum squared resid. .199611 0.948404 Mean dependent var 4. 1991).155462 0. S.9431 YUG 1. 1991).882305*** 0.118280 0.0013 KOR 0.0813 ISR 2.383023 0.787968 -1. Robinson.312100 3.075020*** 0. Sources: G10: Equivalent annual growth rate of real gross domestic product per capita du- ring the 10 following years (Summers and Heston. 28(51). 1991).2731 TUR -0.778825 0. RGDP : Real gross domestic product per capita in 1985 constant prices (Summers and Heston. Data Set for a Panel of 138 Countries. HU M AN xx: average schooling years in the total population over age 25).724102 0. GN 10: Equivalent annual growth rate of population during 10 years (calculated from Summers and Heston. and DL: Domestic Linkages (Kubo. J.021976 0.0000 OL 0.360283 8. I10: Average Investment-to-GDP ratio during 10 years (calculated from Summers and Heston. OL: Overall linkages.832601*** 0. 1. 5.315780 -1.062130*** 0.011542 5.303870 -0.880405 Prob(F-statistic) 0 Note: Using Kubo’s estimation (1985). dependent var 1. 1986).

238821 Prob(F-statistic) 0 Significance level: ∗10 %.719284 Log likelihood -32.868856 -2.123609** 0.11577 Schwarz criterion 2.278613 0. of regression 0. Error t-Statistic Prob.825489 S.690877 0. Javier Castro y Erika Badillo 95 APPENDIX 2B EDUCATION REGRESSION FROM PANEL DATA Dependent Variable: EDU Method: Least Squares Sample: 30 White Heteroskedasticity-Consistent Standard Errors and Covariance Variable Coefficient Std.256147 1.15E-05 3.378143 0.879813 0.812495 0.28627 F-statistic 35.E.0125 OL 0.849559 Mean dependent var 4. ∗ ∗ ∗1 %. .861372 S.485751 Sum squared resid 15.000277*** 7.009977 6.400333 Adjusted R-squared 0.0094 RGDP 0.29457 Durbin-Watson stat 1.0007 GN10 0.4681 I10 0. dependent var 1.373753 0 R-squared 0.Industrialization and growth Carlos Ortiz. ∗ ∗ 5 %.063592*** 0.D.736791 0. C -5.77758 Akaike info criterion 2.045936 2.

8 33. investment and GDP data are in 1996 prices (Heston.63 2.81411 Burkina Faso 0.8493 1872.20725 20.16948 8.21381 10. Summers and Aten.65173 55.06963 48.40681 22.02635 20.63 40.50226 67.43 24.43179 Gambia -0.35 53.6756 751.44 5.72 64.78 5.11038 42.12917 23. I: Average investment-to-GDP ratio during ten years.43516 64.1025 15443.45707 62.42 72.66429 7.2868 41.75 70.9 Cape Verde 3.28857 7.16872 36.85013 30.21 7. .98 1.81 0.47 9.9589 2768.42105 59.93448 36.86 1.7 18.7187 6246.4442 3227. 2006).5 Sudan 0.3671 12.4501 4458.47 75.07351 10.3 63.52627 Ecuador -0.05 3.16 74.83 1.19996 51.89 24.15381 6.80181 Chile 3.18 68.01533 15.03725 67.05183 22.58798 46.67592 48.9 2.61 2.3 Cyprus 4.3 21.86793 74.78324 El Salvador 1.7509 1141.67853 64.68381 4.01626 33.7093 17437.27 71.28 11.3816 3985. 2009 APPENDIX 3 CROSS-COUNTRY DATA BASE (FIFTY TWO COUNTRIES) COUNTRY G RGDP GPOP I EDU LIFE IND IO IOMAN Algeria 0.96 69. 28(51).41 11.01 28. population data are taken from the World Bank World Development In- dicators 2001.5 65.13 Burundi -0.13 45.05476 8.47335 45.48661 25.47238 2.56 3.02917 5.78 0.2964 Oman 2.55 0.75 26.5 64.21 1.3400 6990.53 74.351 48. Summers and Aten.7619 26.800526 31.88 68.04218 9.34994 74.33 0.29229 Zimbabwe -0.53 25. 0.85702 47.6 43.70726 Finland 1.01 68.09608 9. 1993.78816 42.31165 53.44 60.44427 Kuwait 1.22901 60.5902 18634.4 60.10832 Jamaica 1.45952 2.55 59.54 1.606752 31.74 17.95619 5.26 17.63635 66.85 1.27867 41.21658 72.08616 18.9317 10920.02823 35.77 74.86 34.38333 3.7460 1343.3104 9559.32286 2.98714 1.23 46.9321 893.62333 3.2113 18727.2 18.49 2.2890 47628.0505 1900.25 25.75 16.26762 8.16 2.59015 56.40554 20.88429 1.118571 42.23476 4.4 74 Spain 2.3015 69.99377 63.2136 15898.99704 Portugal 3.29626 67.7 Norway 2.35022 52. Summers and Aten.2711 7271.25 11.28592 13.47682 18.30048 0.82 57.59721 58.34685 South Korea 6.07289 Syrian Arab Rep.81481 Canada 1.83141 Sierra Leona -3. RGDP : 1980 real gross domestic product per capita in constant prices.61876 72.5581 5024.84806 45.84278 14.98 19.75 1. HU M AN xx: average schooling years in the total population over age 25).4019 3.3844 1247.4885 876. GP OP : Average annual growth rate of population during 10 years.18 6.51048 44.70338 48.29 58.89911 5.5353 12048.42381 2.59 25.2168 8620.03917 10.86 23.09 6.75522 63.47591 60.57158 17.47727 7.91155 48.2854 5095.9175 1929.26383 64.2 21.62694 4.27143 9.54439 72.90(a) 45.50333 0. 2006).43 73.2156 48.20857 6.121071 25.94 65.86 29.41947 Rwanda -2.559587 38.7457 2370.91187 Mauritius 4.31 0.15524 8.02383 12.95856 68.73(a) 59.82429 2.02382 52.4093 18192.95 1.61 0.03731 Denmark 1.15779 Japan 2.37335 Bolivia 0.95762 5.38 0.11381 3.25085 France 1.02867 10.63348 69.16831 73.69477 53.58401 21. taken from the chain GDP series RGDPCH (Heston. Data Set for a Panel of 138 Countries.40455 14.79095 0.39524 2.47854 22.10476 4 52.54738 15.1 15.6796 75.82 54.4 63.02885 48.09251 Sweden 1.39975 26.12 51.74 1.22 9.24 1.66561 76.22155 45.17 2.6519 New Zealand 1.63356 Uruguay 2.71 12.29 0.3629 5526.32529 67.93 68.82 0.84295 2.11 76.73 49.0649 4986.3 57.4488 1062.1 Sri Lanka 3.63 18.48286 8.38 20.51016 Colombia 1.19928 62.65 3.63514 63.5888 Nigeria 0.35026 23.95066 Bangladesh 1.37 0.5527 8925.60697 Swaziland 2.56271 Venezuela -0.559896 24.9 70.4 Jordan -1.1211 3069.64 3.66124 4.7308 68.14735 8.76 21.33051 20.58 21.65188 Argentina 0.19 27.83147 Mexico 0. -1.22 2.02928 67.15 1.6 70.42053 31.36 2. EDU : Educational Attain- ment (Barro and Lee.96 0.86 3.540956 28.33 73.14 0.4986 15520.67754 Sources: G: Equivalent annual growth rate of real gross domestic product per capita over 1980-2000 (calculated from Heston. LIF E: Life expectancy at birth in 1980 (the World Bank´s Global Development Finance & World Development Indicators).29 70.60762 6.28 75.01 3.27333 11.1 1.58882 68.0557 18169.88619 5.86619 4.8941 4496.5147 4828.80967 34.99 75.29 19.9130 18970.96571 1.65 48.68738 12.76 1.6 18.7469 19615.53095 4.63 0.24 14.68 48.62624 10.50306 United Arab Emir.27436 36.4 59.3265 1130.93 64.0947 17907.86719 38.27 1.58 2.40857 5.74991 67.4594 1002.1728 30059.88 1.96 Cuadernos de Economía.23 74.35856 Germany 1.58287 Fiji 0.86 61.33954 80.01489 10.11469 Benin 0.79 0.65048 6.78(a) 44.27767 16.19 2.98982 31.94802 17.41 72.93238 0.0998 9979.25286 23.72 19.00571 5.41993 58.13 1.64 48.63 33.98747 64.6719 0.22 3.11065 73.54905 5.39808 Austria 2.379944 30.66551 12.86 2.62333 1.00(a) 61 4.9019 6675.23 76.30906 50.01 66.6919 8422.34 3.8545 68.09951 Iceland 1.77 15.28 0.58 0.7 72.81 66.72 18.37952 3.76544 17.54857 8.25444 16.79 Peru -1. 2006).17 8.1 0.18 4.39 30.076962 33.5 Ghana 0.6922 4549.59875 54.83 35.13 1.98095 2.84 29.49224 69.9897 17613.73 Cameroon -1.28762 9.26049 3.422151 8.29592 60.65 29.01 11.96 10.98161 8.62 69.72 2.15 75.1111 55.09704 49.4441 3705.36 4.73832 47.2298 20.71951 Botswana 4.70429 4.46429 6.64555 64.57952 1.91 23.07828 39.33 58.87435 14.35919 13.43264 64.7157 1347.34 15.12268 60.55291 Netherlands 2.73 0.39 0.25256 Costa Rica 1.

261753 0.020578 Prob(F-statistic) 0 Significance level: ∗10 %. Error t-Statistic Prob.822693 0. IOM AN : Manufacturing sector input-output coefficient.035959 2.727037 S.95958 Durbin-Watson stat 2.836534 S.205551 -2.0098 I 0.61174 F-statistic 34.724129 0. The last two variables are estimated at constant prices –whenever possible– from the United Nations´ National Accounts Statistics: Main Aggregates and Detailed Tables.029863 4.D. C -1. IO: Aggregate input- output coefficient.007 GPOP -0.Industrialization and growth Carlos Ortiz. calculated from the United Nations´ Na- tional Accounts Statistics: Main Aggregates and Detailed Tables.903456 Log likelihood -91.693962 0.481972 Akaike info criterion 3. ∗ ∗ ∗1 %. .081329** 0. dependent var 2.0284 IO 0.0913 RGDP 0. of regresión 1.124880*** 0. APPENDIX 4 CROSS-COUNTRY EDUCATION REGRESSION Dependent Variable: EDU Method: Least Squares Sample: 52 White Heteroskedasticity-Consistent Standard Errors and Covariance Variable Coefficient Std. Javier Castro y Erika Badillo 97 IN D: manufacturing sector GDP share in 1980.614423 Adjusted R-squared 0.715836 Sum squared resid 103.57E-05 2.748446 Mean dependent var 4. ∗ ∗ 5 %.902154 1.553746*** 0.2233 Schwarz criterion 3.000101*** 3.E.0001 R-squared 0.103255 -1.18181 0.

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