Optimal industrial structure and economic growth: a new measurement method and application

Abstract

PurposeThe purpose of this paper is to explore the matching relationship between factor endowment and industrial structure, and its impact on economic growth.Design/methodology/approachThe assortative matching method is developed to quantitatively measure the matching between factor endowment and industrial structure. A series of empirical tests are then carried out to evaluate the impact on the economic development of the matching.Findings1) The matching between factor endowment and industrial structure has a significantly positive impact on economic growth. (2) Economic growth reaches its maximum when the gap between the two sectors narrows to zero. (3) This effect is particularly significant for countries with higher GDP per capita and GNI per capita. (4) The results remain robust after employing a series of tests.Practical implicationsAggressive industrial policies are not desirable. The optimal industrial structure is the one that complied with the comparative advantage of the given factor endowment in the economy.Originality/valueSo far, there has been a significant lack of an applicable quantitative indicator for measuring the matching between factor endowment and industrial structure, which is essential for conducting empirical tests and providing evidence for related economic theories.