Testing Kaldor's Engine of Growth Hypothesis in Jordanian Economy

Khaled L. Al-Naif, Hana M. Alhonati

Abstract


This paper aims to investigate the validity of the Kaldor’s engine-of-growth (KEG) hypothesis, which can be summed up in the expression “manufacturing is the engine of growth" in Jordan. It also investigates the causality between manufacturing production and economic growth over the period spanning from 1977 to 2015, using Johansen co–integration and Granger causality techniques through co-integrated Vector Auto regression methods.

The results indicate that there is a uni-directional causality relationship running from manufacturing production to economic growth in both the long and short run. This result coincides with Kaldor's hypothesis, which highlights the important role of manufacturing production in the future in determining the growth rate of the economy.

The study recommends that manufacturing sector should be supported in order to stimulate Jordanian’s economic growth.

Extending studies to other sectors is a matter of empirical study, and one that is worth pursuing.


Keywords


Kaldor’s Engine-of-Growth (KEG) hypothesis; Economic Growth, Manufacturing, Co-integration; Granger causality and Jordanian Economic

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