Quality of Growth and Poverty in Low Income Countries: The Role of Manufacturing

• Main Authors: Fabella, Raul V., Daway-Ducanes, Sarah Lynne S., Ducanes, Geoffrey
• Format: text
• Published: Archīum Ateneo 2023
• Subjects: industrial structure; low income countries; manufacturing; poverty incidence; quality of growth; services; Economics; International Economics; Macroeconomics; Social and Behavioral Sciences
• Online Access: https://archium.ateneo.edu/economics-faculty-pubs/203; https://archium.ateneo.edu/context/economics-faculty-pubs/article/1203/viewcontent/DLSUBER_2023July_1_Fabella_revised.pdf
• Institution: Ateneo De Manila University

Both the Millennium Development Goals (MDGs) which ended in 2015, and its replacement the Sustainable Development Goals (SDGs) of the United Nations which will end in 2030, target the eradication of poverty. The 2020 Covid pandemic has seriously worsened poverty incidence in many low income countries, and recovering lost ground is paramount. As low income economies try to establish a new normal, they need to aim not only for higher overall economic growth but also for a higher quality of economic growth for improved inclusion outcome. Higher quality means more inclusion per unit growth. We discuss how for the same overall growth in the economy, a higher share of the Manufacturing sector in GDP may bring about lower poverty incidence, while a higher share of Services may have the opposite effect. We first compare the poverty reduction experiences of the Philippines whose growth has been largely Services-led in the last two decades, with that of China and Vietnam, whose growth has, for the most part, been Manufacturing-led. We then present evidence based on cross-country panel data for low income countries that the Manufacturing share in GDP exhibits a significant negative association with poverty incidence, while the higher Services share exhibits a significant positive association with poverty incidence. Low income countries seeking more inclusive growth may do better if they privilege their Manufacturing sector over the Services sector.