The role of manufacturing sector to economic growth in North Macedonia

Abstract

The main aim of the paper is to examine the performance of the manufacturing sector as a potential driver of economic growth in North Macedonia. The empirical research applies the comparative analysis of manufacturing sector performance, and growth sources sectoral approach for measuring the contribution of the manufacturing sector in the growth rate of GDP for the period 2002-2022. The results of the empirical analysis show a significant increase in the relative share of the manufacturing sector in GDP from 8.4% in 2002 to 13.1% in 2022 after the process of de-industrialization in the initial transition period. Additionally, the empirical analysis indicates a significant positive impact of the manufacturing sector on the economic growth of the country in the analyzed period. The country has slightly changed the unfavorable industrial structure by moving from clothing and garments to the automotive and machinery sector and it has recorded a significant improvement in the productivity level of the manufacturing sector measured by the gross added value per worker (from 3,026 US$ in 2002 to 14,464 US$ in 2022). However, these trends are still not enough to push forward the country's development process. Hence, the paper suggests that the policymakers should create a new approach based on industrial policy that will support modern re-industrialization by accelerating structural changes and by supporting new productive investments and technology transfer. This process is the best alternative for achieving sustainable economic growth of the country and a way for speeding up the convergence path toward the EU level of GDP per capita in the medium and long run.