The Role of Manufacturing in Economic Growth in the Countries of the Andean Community of Nations (ACN), 1993–2019

Whether Kaldor’s three growth laws still operate in commodity-dependent middle-income economies—and through what transmission mechanism—is an open empirical question after three decades of trade liberalisation, financial opening, and the 2002–2014 commodity super-cycle. This paper provides the first bloc-level panel test of the three laws for the Andean Community of Nations (ACN—Bolivia, Colombia, Ecuador, and Peru) over 1993–2019, combining static feasible generalised regressions with dynamic Arellano–Bond difference-GMM and long-run multipliers. The predictions are as follows: manufacturing growth is positively associated with aggregate output (long-run multiplier 0.91), the Verdoorn coefficient is positive and significant at 0.42, and labour reallocation from non-manufacturing activities is associated with rising aggregate productivity over the time. The headline finding, however, is a decomposition failure: the Verdoorn and employment elasticities coefficients sum up to 0.35 rather than 1 as required by the accounting identity, leaving a residual of 0.65. We term this “jobless manufacturing growth” (capital-deepening). This suggests that the Kaldorian regime in the ACN has neither collapsed nor remained intact, but has mutated into a capital-intensive, labour-saving form consistent with Dutch-disease. Thus, industrial policy alone would deepen the jobless pattern: structural transformation in these economies requires pairing subsidy plans with the macroeconomic management of commodity-dependent exchange rates.