Ahmad, Manzoo ; Kha ak, Shouka Iqbal; Khan, Shehzad; U Rahman, Zia
A icle
Do agg ega e domes ic consump ion spending & echnological
inno a ion a ec indus ializa ion in Sou h A ica? An applica ion o
linea & non-linea ARDL models
Jou nal o Applied Economics
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indus ializa ion in Sou h A ica? An applica ion o linea & non-linea ARDL models, Jou nal o
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Do agg ega e domestic consump ion spending &
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Manzoo Ahmad, Shouka Iqbal Kha ak, Shehzad Khan & Zia U Rahman
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indus ializa ion in Sou h A ica? An applica ion o linea & non-linea ARDL models, Jou nal o
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ARTICLE
Do agg ega e domes ic consump ion spending &
echnological inno a ion affec indus ializa ion in Sou h
A ica? An applica ion o linea & non-linea ARDL models
Manzoo Ahmad
a,b
, Shouka Iqbal Kha ak
c
, Shehzad Khan
d
and Zia U Rahman
e
a
School o Economics, Depa men o Indus ial Economics, Nanjing Uni e si y, Nanjing, China;
b
Depa men
o Economics, Abdul Wali Khan Uni e si y Ma dan, Ma dan, Pakis an;
c
School o Business Adminis a ion,
Jimei Uni e si y, Xiamen, China;
d
Ins i u e o Business S udies & Leade ship (IBL), Abdul Wali Khan Uni e si y
Ma dan, Ma dan, Pakis an;
e
Resea ch School o Sou heas Asian S udies, Xiamen Uni e si y, Xiamen, Fujian,
China
ABSTRACT
The cu en pape has a emp ed o measu e he effec o he posi i e
and nega i e shocks o agg ega e domes ic consump ion spending
(ADCS) and echnological inno a ion (TINN) on indus ialisa ion in
Sou h A ica using he ime-se ies da a om 1980 o 2014. The ARDL
es ima ions indica ed ha he ADCS and TINN de e mine indus ialisa-
ion in bo h he sho e m and long e m, while he NARDL es ima ions
sugges ed ha he posi i e shocks in ADCS and TINN ha e a posi i e
effec on indus ialisa ion in bo h he sho un and long un. Ou
esul s alida ed an asymme ical associa ion be ween TINN and indus-
ialisa ion, and be ween ADCS and indus ialisa ion.
ARTICLE HISTORY
Recei ed 9 Ma ch 2019
Accep ed 15 Oc obe 2019
KEYWORDS
Agg ega e domes ic
consump ion spending
(ADCS); echnological
inno a ion (TINN); ARDL;
NARDL
1. In oduc ion
Globally, economies a e now ecognising he need o adap o changes in indus ial echnology.
Reason being, he high- echnology indus y has become a c i ical ool o economic g ow h as i has
enabled bo h de eloped and de eloping economies o manu ac u e globally compe i i e goods and
se ices. O e he pas ew decades, significan ad ancemen s in equipmen and p oduc ion
echniques ha e enabled inc eased p oduc i i y, efficien p oduc ion, and low labo -cos (Tabi,
2011). B oadly, indus ialisa ion no only imp o es an economy’s capaci y o con e aw ma e ials,
in e media e goods, and o he inpu s in o finished goods mo e efficien ly, bu also gene a es
inc eased e i ies and olume o manu ac u ed p oduc s. Beyond ha , i also imp o es employmen
and li ing s anda ds (Maku, 2015). As a p ima y aspec o he economic policy in mos de eloping
coun ies (Jelilo , Enwe em, & Isik, 2016), i is conside ed as an indispensable ool o alle ia e
po e y and imp o e economic g ow h. Despi e ha , he indus ialisa ion pa e ns ha e a p o ound
impac on he benefi s ha he poo ecei e om economic ac i i ies. Such ha , indus ial and p o-
poo economic policies a e o en ocused on expanding he economic e u ns o he p oduc i e
ac o s possessed by he poo , o example, inc easing benefi s o labou s wi hou skills (Uni ed
Na ions, 2007). In pa allel, agg ega e consump ion and inno a ion also play a significan ole in he
CONTACT Shouka Iqbal Kha ak [email p o ec ed]
JOURNAL OF APPLIED ECONOMICS
2020, VOL. 23, NO. 1, 44–65
h ps://doi.o g/10.1080/15140326.2019.1683368
© 2019 The Au ho (s). Published by In o ma UK Limi ed, ading as Taylo & F ancis G oup.
This is an Open Access a icle dis ibu ed unde he e ms o he C ea i e Commons A ibu ion License (h p://c ea i ecommons.o g/licenses/
by/4.0/), which pe mi s un es ic ed use, dis ibu ion, and ep oduc ion in any medium, p o ided he o iginal wo k is p ope ly ci ed.
indus ialisa ion p ocess. Highe agg ega econsump ion acili a es he indus ial sec o o p oduce
mo e goods and se ices, and expand hei business: ins alling new plan s; hi ing skilled labou s,
inc easing esea ch and de elopmen ; and applying inno a i e and ad anced echnology. Wi h
inc eased p oduc i i y and efficiency, indus ies can p oduce goods a low cos wi hou comp o-
mising on p oduc quali y. Consume s’sa is ac ion o p oduc s inc eases and enables excessi e
consump ion, he eby o ming a con inuous cycle be ween agg ega e consump ion and manu ac-
u e alue-added as shown in Figu e 1.
Tha said, he agg ega e consump ion is no always cons an gi en ha i may ise and
all o e ime due o economic shocks. Du ing ecessions, economic ac i i ies decline,
which in u n, unde mines a e age income and agg ega e consump ion spending, and
he le el o indus ial p oduc ion: consequen ly, leading o he closu e o p oduc ion
plan s, dec eased wages, and lay-offs. In con as , inc eased economic ac i i ies du ing
he economic boom cause a ise in a e age income, agg ega e consump ion spending,
and indus ial p oduc ion inc eases: subsequen ly, leading o new p oduc ion plan s,
inc eased labou wages and employmen . Thus, he nega i e shock o agg ega e con-
sump ion spending ha ms he p ocess o indus ialisa ion, while he posi i e shock o
agg ega e consump ion spending enhances he p ocess o indus ialisa ion. Equally
impo an , he impo ance o echnological inno a ion has been widely ecognized o
a aining economic g ow h, p oduc i i y, and sus ainable de elopmen o ou socie ies.
Technological inno a ion p ac ices ha e benefi ed mul iple domains such as, cogni i e,
cul u al, poli ical, echnological and scien ific. Gi en ha lea ning abili ies a e c ucial o
ans o ming, sol ing and le e aging socioeconomic eali ies, echnological inno a ion
enables socie ies o in en mo e efficien capi al goods and easible solu ion o op imal
p oduc ion sys ems (Adesida, Ka u i-Sebina, & Resende-San os, 2016).
Sou h A ica, as one o he as es de eloping economies, ecognises he impo ance o
echnological inno a ion and indus ialisa ion. F om 1980 o 2014, he a e age g ow h in
manu ac u ing alue-added (MVA) and a e age g ow h in agg ega e domes ic consump-
ion spending (ADCS) o Sou h A ica we e 15.75% and 5.50%, espec i ely. F om 1980 o
2014, Sou h A ica’s MVA and ADCS we e highe han o he A ican economies, which
means ha he impac o ADCS on indus ialisa ion was ela i ely mo e significan . E en
hough he e is no empi ical s udy ha explains he complex in e ac ion be ween MVA,
Ma ke o Goods
and Se ices
Economic
Agen s
Ma ke o Goods
and Se ices
Indus ial
Sec o
Figu e 1. Ci cula model o ADCS and indus ial p oduc ion.
JOURNAL OF APPLIED ECONOMICS 45
ADCS and indus ialisa ion, a possible explana ion esides in he posi i e and nega i e
shocks in ADCS and hei subsequen impac on indus ialisa ion.
The e o e, he s udy’s pu pose is o examine he impac o he posi i e and nega i e shocks
o ADCS and TINN on indus ialisa ion. The pape con ibu es o he exis ing economic
li e a u e in many ways. Fi s , o he bes o ou knowledge, i is he fi s s udy on he nexus
among ADCS, TINN and indus ialisa ion. Second, he p oposed concep ual amewo k
elabo a es how ADCS and echnological inno a ion (TINN) con ibu e o he p ocess o
indus ialisa ion unde diffe en economic condi ions. Thi d, his empi ical s udy ep esen s
an ini ial a emp o examine po en ial asymme ical nexus be ween ADCS, TINN, and
indus ialisa ion using he non-linea ARDL (NARDL).
The es o he pape is di ided in o six diffe en pa s. Pa 2 discusses he concep ual
amewo k. Pa 3 ou lines he da a sou ces, me hodology, and econome ic specifica-
ion. Pa 4 elabo a es he empi ical findings. Pa 5 p o ides he conclusions, ollowed by
policy ecommenda ions and limi a ions o he s udy.
2. Concep ual amewo k
2.1. Indus ial de elopmen in sou h a ica: an o e iew
The indus ial de elopmen ac oss diffe en sec o s in Sou h A ica sugges s ha indus-
ialisa ion ha occu s a he back o p o ec i e ba ie is a igo ous han adi ional
schola s admi , and ha he in es men s in he public sec o can be obus and inci e
g ow h. F om 1925 o 1973, he Sou h A ica go e nmen ollowed an “impo subs i u-
ion”s a egy o enhance he le el o s a e in es men and inland manu ac u ing ac oss key
sec o s. This p ocess o indus ialisa ion o med a symbio ic associa ion be ween he s a e-
owned en e p ises, he s a e, and he mining indus y. This ela ionship led o c ea ion o
massi e s a e-owned co po a ions, local-ma ke and indus y p o ec ion s a egy, labou
exploi a ion and supp ession, gua an eed p o ision o and new companies. Rega dless o
p o ec ionism, economic g ow h was ema kable h ough he 1960s. The expansion o he
manu ac u ing sec o was mainly conspicuous, and Sou h A ica emains he mos indus-
ialised na ion in Sub-Saha a A ica (Schneide , 2000). Du ing he 1980s, Sou h A ica’s
economic condi ions de e io a ed as he manu ac u ing sec o los he abili y o ei he
p oduce employmen oppo uni ies o p oduc s ha could mee he needs o bo h domes-
ic and global ma ke . Fac o s ha con ibu ed o his ad e se si ua ion included he poo ly
s uc u ed p o ec ion sys ems, highly concen a ed indus ial s uc u e coupled wi h
a concomi an ly ineffec ual and in imida ed mic o-en e p ise and SME sec o , echnolo-
gical backwa dness, apa heid’s impac on he wo k o ce skills p ofiling, ou moded and
ep essi e wo k o ganisa ion, and ineffec i e indus ial ela ions sys ems (Joffe & Kaplan,
1995). Despi e all challenges, Sou h A ica has no only eme ged as one o he as es
eme ging economies bu also anks in he lis o newly indus ialised economies. Figu e 2
depic s he MVA o he op eigh A ican eme ging economies. Wi h almos 20% sha e,
Sou h A ica anked among he op du ing is-a- iz MVA con ibu ions in 2018.
Figu e 3 shows he op 10 manu ac u ing sec o du ing 1998, ep esen ing he
ca ego y-wise (pe cen age) sales. As shown below, he ood ca ego y ( ui , fish, mea ,
e c.) made up abou 7.2% o he o al manu ac u ing. While he manu ac u ing o s eel
p oduc ion and basic i on, o he ood p oduc s, pa s and accesso ies, coke, pe oleum
46 M. AHMAD ET AL.

p oduc s and nuclea uel, be e ages, non- e ous me al p oduc s, mo o ehicles, o he
chemical p oduc s, and basic chemicals made o 6.45%, 5.39%, 3.79%, 7.02%, 6.41%,
5.29%, 6.74%, 6.08%, and 4.32% o o al manu ac u ing, espec i ely.
F om ano he pe spec i e, echnology and inno a ion no only con ibu e o he
indus ialisa ion p ocess bu also enhance he quali y o he p oduc ion p ocess. O e
he yea s, indus ies ha e shi ed om low- ech and esou ce-based ac i i ies o medium-
high and high- ech unde akings. The inc easing sha e o medium-high and high- ech
indus ies signifies ongoing effo s o he go e nmen o enhance he echnological
supe io i y in manu ac u ing. Indus ies ha e been making significan , in e ms o
manu ac u ing he ools and machine y needed by cons uc ion, mining li es ock,
ag icul u e, manu ac u ing, and a ange o consume goods companies (UNDP, 2018).
Below, Table 1 indica es he echnology-in ensi y composi ions o MVA ac oss de el-
oped and de eloping economies. Sou h A ica is no only domina ing among A ican
Sudan
4%
Alge ia
4% Kenya
4%
Mo occo
9%
Angola
13%
Sou h A ica
20%
Egyp
26%
O he s
33%
Manu ac ing alue added: Top 8 A ican Coun ies
Figu e 2. Manu ac u ing alue-added: Top 8 eme ging economies in A ica. Sou ce: Sou h A ica
Ma ke Insigh s (2018)
5.39
4.89
4.50
4.05
5.18
4.83
4.43
5.00
4.61
4.18
52.94
Sou h A ica: Manu ac u ing Ca ego ies, 1998
Mo o ehicles
O he ood p oduc s
Gene al pu pose machine y
Coke, pe oleum p oduc s an
d
nuclea uel
O he chemical p oduc s
Non- e ous me al p oduc s
Mea , ish, ui e c.
Basic i on and s eel p oduc s
Be e ages
Special pu pose machine y
O he s
Figu e 3. Sou h A ica: he Pe cen age sha e o each sec o wi hin he manu ac u ing indus y.
Sou ce: Sou h A ica Ma ke Insigh s (2018).
JOURNAL OF APPLIED ECONOMICS 47
economies in he medium-high and high- ech ca ego ies, bu i also s ands p ominen in
he Sub-Saha an A ica is-a- iz compe i i eness and inno a ion.
2.2. In eg a ing agg ega e consump ion spending, echnological inno a ion, and
indus ialisa ion: a concep ual amewo k
Gene ally, he demand in an open economy is o en conside ed o be egula ed by ou
economic agen s (i.e. domes ic consume s, p oduce s, go e nmen , and in e na ional
consume s) whose o al expendi u es ep esen g oss domes ic demand. The o al expen-
di u es on domes ic ou pu a e equal o he o al spending by each o he a o emen ioned
economic agen s. Because indi iduals consume domes ic and o eign-p oduced goods, he
o al consump ion spending is compu ed as a sum o o eign plus domes ically p oduced
goods. The same logic applies o in es o s and go e nmen spending. In o he wo ds, he
g oss domes ic p oduc (GDP) eflec s he diffe ence be ween agg ega e consump ion
spending on domes ic and o eign-p oduced goods by he esiden s o he coun y. The
ela ionship be ween agg ega e spending on ou pu and he agg ega e consump ion spend-
ing on domes ic and o eign-p oduced goods can be exp essed as Equa ion (1):
Y"¼AC ACτ(1)
Whe e: Y"= domes ic ou pu ; AC = agg ega e spending on he consump ion o goods;
ACτ= agg ega e spending on he consump ion o impo ed goods; and AC ACτ=
agg ega e domes ic consump ion spending (ADCS). AC is he sum o o al consump ion
spending on domes ically p oduced goods by consume s, p oduce s, and go e nmen ,
while he ACτis he sum o he o al consump ion spending on o eign-p oduced goods
by he same agen s. The ADCS includes changes in in en o ies, household consump ion
expendi u e, final consump ion expendi u e, gene al go e nmen expendi u e, g oss
capi al o ma ion, g oss fixed capi al o ma ion, and expo s. Equa ion (1) shows ha
he o al spending on domes ically p oduced goods is de e mined by he diffe ence
be ween agg ega e spending on consump ion o local plus impo ed goods. This equa ion
is de i ed om he na ional income iden i y. Besides, g oss domes ic p oduc ion eflec s
he o al alue-added o p oduc ion. Many sec o s a e esponsible o he p oduc ion o
goods and se ices (e.g., ag icul u e, o es y, fishing, mining, manu ac u ing), and hus,
sum o he alue-added o diffe en sec o s combines o o m he o al consump ion
spending. The e o e, Equa ion (1) can also be modified as;
AHFFVA þMMUVA þMVA þCVA þWRRHVA þTSCVA þOAVA
¼AC ACτ(2)
Whe e; AHFFVA = ag icul u e, hun ing, o es y, and fishing alue-added; MMUVA =
mining, manu ac u ing, and u ili ies alue-added; MVA = MVA; CVA = cons uc ion
alue-added; WRRHVA = wholesale, e ail ade, es au an s, and ho els alue-added;
TSCVA = anspo , s o age, and communica ion; and OAA = o he ac i i ies alue-
added. P o iding he p ime objec i e is o in es iga e he possible associa ion be ween
ADCS and indus ialisa ion, we eadjus ed equa ion (2) o MVA as ollows:
MVA ¼ACACτ
ðÞ (3)
48 M. AHMAD ET AL.
Table 1. Technology in ensi y composi ion o MVA by indus ialisa ion le el, de elopmen g oup, egion and income, 2005, 2010, and 2015 (pe cen ).
2005 2010 2015
G ouping
Low
ech
Medium-low
ech
Medium-high
ech
Low
ech
Medium-low
ech
Medium-high
ech
Low
ech
Medium-low
ech
Medium-high
ech
Wo ld 30.8 27.0 42.2 29.8 26.3 43.9 29.0 26.3 44.7
By indus ialisa ion le el
Indus ialized economies 28.6 25.6 45.8 27.4 24.3 48.3 26.1 24.1 49.9
No h Ame ica 32.8 24.2 43.0 30.9 22.9 46.2 28.7 23.0 48.3
Eu ope 28.4 27.1 44.4 27.9 25.7 46.4 26.4 25.1 48.5
Eas Asia 22.1 23.8 54.1 21.2 22.4 56.5 20.8 22.1 57.1
De eloping and eme ging indus ial
economies
36.4 30.8 32.8 34.0 29.9 36.1 33.2 29.5 37.3
O he de eloping economies 45.3 31.4 23.4 43.7 32.6 23.8 46.2 26.9 26.9
Leas de eloped coun ies 61.4 25.9 12.7 70.2 20.8 9.0 73.3 19.4 7.3
By egion (de eloping and eme ging indus ial economies)
A ica 49.4 29.8 20.8 49.6 31.2 19.2 58.2 22.6 19.2
Sou h A ica 42.4 29.9 27.8 43.9 28.6 27.5 44.5 26.8 28.7
Asia and Pacific 32.0 30.8 37.3 29.9 30.1 40.0 29.1 30.1 40.8
China 29.9 30.5 29.6 28.5 30.0 41.5 27.5 30.3 42.2
India 26.5 40.0 33.5 22.8 38.8 38.4 23.9 40.7 35.4
Eu ope 42.5 27.9 29.6 40.9 27.9 31.2 38.9 27.9 33.2
Poland 41.9 26.1 32.0 37.2 27.9 34.9 36.8 29.2 34.0
Tu key 41.2 27.2 31.6 40.6 27.4 32.0 38.2 26.9 35.0
La in Ame ica 39.9 32.3 27.7 40.0 29.8 30.2 41.4 29.4 29.2
Mexico 33.0 33.7 33.3 34.0 30.9 35.1 32.1 28.1 39.9
By income le el
High income 29.0 25.6 45.4 27.7 24.4 47.9 26.4 24.2 49.3
Uppe -middle income 34.7 31.3 34.0 32.4 30.1 37.5 30.8 30.1 39.1
Lowe -middle income 38.4 29.6 32.0 36.6 29.5 33.9 39.1 27.1 33.8
Lowe income 63.2 24.9 11.8 71.4 20.3 8.3 73.8 19.5 6.7
No e. Manu ac u ing alue-added is in cons an 2010 USD. Sou ce: UNDP (2018)
JOURNAL OF APPLIED ECONOMICS 49
Whe e: AC= agg ega e consump ion spending on manu ac u ed p oduc s; and, ACτ=
agg ega e consump ion spending on impo ed manu ac u ed p oduc s. Equa ion (3) indi-
ca es ha he economic agen s consume and a e willing o buy he en i e p oduce o he
manu ac u ing sec o , depending on indi idual choices, as e, p ices, and quali y. Thus, i is
sa e o assume ha any change in ADCS will cause a significan change in he MVA. This
si ua ion, o some ex en , occu s as high consump ion spending o en encou ages he
manu ac u ing sec o o alloca e addi ional capi al o he ins almen so new plan s, ools,
machine y, and o hi e mo e labou s. Manu ac u e s adop inno a i e, sophis ica ed and
ad anced echnology o p oduce mo e goods a a lowe cos ; consequen ly, inc easing he
indus ialisa ion p ocess in de eloping economies. Assuming ha ADCS is an essen ial
ac o o MVA, any change in ADCS will also affec indus ialisa ion. Based on such
assump ion, he changes in ADCS and MVA can be s a ed in he ollowing o m:
ΔMVA ¼ΔACΔACτ
ðÞ (4)
Whe e: ΔMVA = change in MVA; ΔAC= change in agg ega e consump ion spending;
and, ΔACτ= change in agg ega e spending on impo ed goods; and ΔACΔACτ=
change in ADCS. The ADCS- ela ed changes in MVA a e called agg ega e domes ic
consump ion spending o manu ac u ing alue-added (ADCS-MVA), which a e p e-
sen ed below in he ma hema ical o m as equa ion (5):
ADCS MVA ¼ΔMPV
ΔACACτ
ðÞ
¼ΔMPV
ΔADCS (5)
The ADCS-MVA es ima es he a ia ions in he manu ac u ing alue-added due o
changes in he agg ega e domes ic consump ion spending. The associa ion be ween
ADCS and MVA is depic ed in Figu e 4.
The MVA
0
and ADCS
0
ep esen he s a ing poin s o he MVA and ADCS. As ADCS
inc eases om ADCS
0
o ADCS
1
, he MVA concu en ly inc eases om MVA
0
o MVA
1
.The
cu e o med by joining he o ange and blue poin s can be desc ibed as he ADCS cu e, which
depic s he posi i e associa ion be ween ADCS and MVA. The slope o ADCS cu e is called
he ADCS o manu ac u ing alue-added in ensi y (ADCSP-MVA). The ADCS-MVA is
ep esen ed by he ADCS line, a sloped line c ea ed by plo ing change in MVA (Y-axis) and
ADCS (X-axis). Gi en he da a on ADCS and MVA, he ADCS-MVA can be easily compu ed.
This compu a ion is c ucial as he ADCS-MVA is no cons an and a ies due o changes in he
le elo ADCS:highe heADCS, hehighe willbeADCS-MVA.Wi haninc easeindomes ic
demand, he indus ial p oduc ion will ise, and u he inc ease he MVA. The main concep
behind he ADCS-MVA is ha highe ADCS expands he agg ega e domes ic demand,
indus ial p oduc ion, economic g ow h, and MVA. Using he alue o ADCS-MVA, he
impac size o an inc ease in ADCS on indus ialisa ion can be easily es ima ed.
Fu he mo e, economic si ua ion is inconsis en gi en ha i expe iences economic shocks in bo h
he sho and long- un as a p ocess o he economic cycle. Recessions, as a nega i e shock, lead o
a decline in economic ac i i ies and exe p essu e on li ing-cos s and sa ings o people. This shock in
ADCScausesachangein hele elo po e y, eal income, public deb , ax collec ion, economic
g ow h while dec easing MVA in he sho e m. Wi h he declining le el o ADCS, manu ac u e s
a emp o ollow consume ’s demand and cu down he cos o p oduc ion o a oid po en ial losses:
subsequen ly, dec easing he MVA. An ex eme nega i e shock in ADCS can e en cause high
unemploymen and significan educ ionin heindus ialp oduc ion.Asillus a edinFigu e 5, he
50 M. AHMAD ET AL.
Fo da a analysis, he es ima ion o he equa ions abo e in ol ed he ollowing
p ocedu es. Fi s , al hough he NARDL app oach can be used, i espec i e o he
in eg a ion o o de , i e y c ucial o conduc uni - oo es s o ensu e ha no a iable
is in eg a ed o de o wo. Thus, he Augmen ed Dicky Fulle (ADF) and Phillips-Pe on
(PP) uni oo we e u ilised, in addi ion o, a uni oo es wi h s uc u e b eak. Second,
equa ion (8) and (9) we e es ima ed o examine he long and sho - un ela ionship
be ween ADCS, TINN, and indus ialisa ion. Thi d, he ARDL Bound es was used o
check he co-in eg a ion among a iables, in which we es ed he null hypo hesis o no
long- un associa ion (H0:α4¼α5¼α6¼0) agains he al e na i e hypo hesis
(H1:α4Þα5Þα6Þ0). Fou h, equa ion (15) and (17) we e es ima ed o es possible
impac o he posi i e and nega i e impac o ADCS on indus ialisa ion. Fi h, he null
hypo hesis o no long- un associa ion (H0:ς1¼Γ2¼Γ3¼Γ4¼0) was es ed agains
he al e na i e hypo hesis (H1:ς1ÞΓ2ÞΓ3ÞΓ4Þ0) a e alida ing he long- un ela ion-
ship among a iables. Six h, he nex s ep was o confi m he possible long- un asym-
me ic associa ion be ween ADCS and indus ialisa ion by es ing he null hypo hesis o
no long- un asymme ical ela ionship be ween ADCS and indus ialisa ion
(H0:Γþ
3ς1¼
Γ
4ς1) agains he al e na i e hypo hesis (H1:Γþ
3ς1ÞΓ
4ς1).
The sho - un asymme ic ela ionship be ween ADCS and indus ialisa ion was es ed:
he null hypo hesis o no sho - un asymme ical ela ionship be ween ADCS and
indus ialisa ion (H0:ζþ
iΓ5¼
ζ
iΓ5) agains he al e na i e hypo h-
esis (H1:ζþ
iΓ5Þζ
iΓ5).
In he same way, equa ion (16) and (18) we e es ima ed o compu e he possible impac
o posi i e and nega i e componen s on TINN and indus ialisa ion. A e es ima ing he
long- un coefficien s o posi i e and nega i e componen s o TINN, he bound es ing
me hod was applied o de ec he co-in eg a ion among a iables, in which he null
hypo hesis o no long- un associa ion (H0:Γ7¼Γ8¼Γ9¼Γ10 ¼0) agains he al e na-
i e hypo hesis (H1:Γ7ÞΓ8ÞΓ9ÞΓ10Þ0). The nex was o confi m he possible long- un
asymme ic associa ion be ween TINN and indus ialisa ion by es ing he null hypo hesis
o no long- un asymme ical ela ionship be ween TINN and indus ialisa ion
(H0:Γþ
9Γ7¼
Γ
10
Γ7) agains an al e na i e hypo hesis (H1:Γþ
9Γ7ÞΓ
10
Γ7).
Likewise, he sho - un asymme ic ela ionship be ween TINN and indus ialisa ion was
es ed: he null hypo hesis o no sho - un asymme ical ela ionship TINN and indus ia-
lisa ion (H0:#þ
i=
Γ11 ¼
#
iΓ11) agains he al e na i e hypo hesis (H1:#þ
i=
Γ11Þ
#
iΓ11).
Finally, we compu ed he asymme ic cumula i e dynamic mul iplie effec s o 1%
a ia ion in ADCSþ
i, ADCS
i, TINNþ
iand TINN
i, espec i ely, ollow as:
Kþ
1b ¼X
b
j¼0
@MVA þj
@ADCSþ
1
;K
2b ¼X
b
j¼0
@MVA þj
@ADCS
1
;b¼1;2;3... ... ::
JOURNAL OF APPLIED ECONOMICS 57

Kþ
3b ¼X
b
j¼0
@MVA þj
@TINNþ
1
;K
4b ¼X
b
j¼0
@MVA þj
@TINN
1
;b¼1;2;3... ... ::
whe e b !1,K
þ
1b !$þ
1,K

2b !$
2,K
þ
3b !ωþ
1,K

4b !ω
1.
All he econome ic exp essions we e in eg a ed in o h ee specifica ions o de elop
a be e unde s anding o he equa ions abo e. Specifica ion 1, including equa ion (9) and
(10), o examine he linea associa ion be ween ADCS, TINN, and indus ializa ion.
Specifica ion 2, comp ising o equa ion (15) and (17), o in es iga e he non-linea nexus
be ween ADCS & indus ializa ion; and Specifica ion 3, comp ising o equa ion (16) and
(18), o examine he non-linea linkage be ween TINN & indus ializa ion.
4. Resul s and discussion
Table 2 demons a es he esul s o uni oo es s conduc ed o assess he s a iona i y a
he le el and fi s diffe ence. The -s a is ics o MVA we e ound o be s a is ically
insignifican a he le el (ADF = −1.9850, PP = −1.8551), bu became significan a fi s
diffe ence (ADF = −5.9370, PP = −6.5441 a 1% le el). The -s a is ics o ADCS we e
ound o be s a is ically insignifican a he le el (ADF = −2.9644, PP = 2.1345), bu
became significan a fi s diffe ence (ADF = −4.3717, PP = −4.1788 a 5% le el). The
-s a is ics o TINN we e ound o be s a is ically insignifican a he le el (ADF =
−1.9487, PP = −2.0396), bu became significan a fi s diffe ence (ADF = −5.4010, PP
=−5.6937 a 1% le el). Thus, he esul s (wi hou and wi hou s uc u e b eaks) indica ed
ha he MVA, ADCS, and TINN we e non-s a iona y a he le el bu became s a iona y
a e aking he fi s diffe ence, allowing o conduc ing he ARDL and NARDL model.
As a p e- equisi e, i was conside ed necessa y o selec he lag o de and model selec ion
c i e ia o u he analysis. Based on he AIC esul s epo ed in Tables 3 and 1was
selec ed as he maximum lag o de along wi h he ARDL (1, 1, 0), NARDL (1, 0, 1, 0) and
NARDL (1, 0, 1, 0) as model specifica ion.
Tables 4 and 5indica e he ou comes o he es ima ed long and sho - un coefficien s
o specifica ion 1, 2 and 3.
As seen in Table 4, he ARDL es ima es (Specifica ion 1) show ha helong- unADCShas
a posi i e and significan effec on indus ialisa ion, whe e a 1% ise in ADCS inc eased
indus ialisa ion by 0.59%. In con as , a posi i e and significan connec ion was obse ed
be ween ADCS and indus ialisa ion in he sho un, whe e a 1% upsu ge in ADCS inc eased
indus ialisa ion by 0.65%. This implies ha he expansion o domes ic consump ion has led
o an inc ease in he agg ega e demand, which in u n, gene a ed massi e indus ial p oduc-
ion. I appea s ha high domes ic consump ion has enabled he indus ial sec o o expand i s
Table 2. Ou pu s o he Uni - oo es s.
Le el Fi s Diffe ence
Va iables ADF PP ADF PP
MVA −1.9850 −1.8551 −5.9370*** −6.5441***
ADCS −2.9644 −2.1345 −4.3717** −4.1788**
TINN −1.9487 −2.0396 −5.4010*** −5.6937***
No e: ** and *** depic significance a 5% and 1%, espec i ely. BD = he b eak da e. ADF = Augmen ed
Dickey-Fulle ; PP = Phillips-Pe on
58 M. AHMAD ET AL.
final p oduc ion using new plan s and machine y. Such ad ancemen in domes ic consump-
ion has, o some ex en , con ibu ed o he p ocess o indus ial de elopmen . F om 1980 o
1997, he e was su plus agg ega e consump ion spending (ADCS minus ADCS on o eign
goods) in Sou h A ica. This means ha people ha e spen mo e money on he pu chase o
domes ic goods, indica ing he p og ess and g owing capabili ies o he Sou h A ican
indus ial sec o o p oduce almos all he consume goods. Fu he mo e, he long- un
coefficien o TINN suppo ed ha he echnological inno a ion has a posi i e and significan
effec on indus ialisa ion in Sou h A ica, whe e a 1% inc ease in TINN inc eased indus-
ialisa ion by 0.0422%. The sho - un coefficien o TINN, howe e , e ealed ha a 1%
Table 3. Op imal lag selec ion and model selec ion c i e ia.
Model AIC* BIC HQ Adj. R-sq Specifica ion
ARDL −5.9356 −5.7111 −5.85900 0.9799 ARDL (1, 1, 0)
NARDL 1 −5.9621 −5.6899 −5.8705 0.9811 NARDL (1, 0, 1, 0)
NARDL 2 −6.0231 −5.7510 −5.9316 0.9822 NARDL (1, 0, 1, 0)
Table 4. Long- un coefficien s.
Va iables Specifica ion 1 Specifica ion 2 Specifica ion 3
ADCS
+
–––– 0.6059*** ––––
(19.0963)
ADCS
−
–––– 0.6582* ––––
(4.0272)
INNT
+
–––– –––– 0.0594***
(4.3877)
INNT
−
–––– –––– 0.0437***
(5.0697)
ADCS 0.5908*** –––– 0.5629***
(21.8401) (11.7417)
TINN 0.0422*** 0.04619*** ––––
(4.0468) (3.9181)
C 3.7106*** 10.3350*** 4.16687***
(11.3342) (236.5989) (11.7417)
ARDL-Bound Tes 4.7785** 9.7958*** 13.7237***
No e: ** and *** depic significance a 5% and 1%, espec i ely.
Table 5. Sho - un coefficien s.
Va iables Specifica ion 1 Specifica ion 2 Specifica ion 3
C 2.3161*** 3.5281***
(3.7477) (5.4897)
MVA(−1) −0.6242*** −0.62551*** −0.8467***
(−4.0692) (−4.6042) (−7.1875)
TINN 0.0264*** 0.0289* ––––
(3.2406) (1.9539)
D(ADCS) 0.6732*** ––––
(4.9295)
ADCS
+
–––– 0.3790*** ––––
(4.7602)
ADCS
−
–––– 0.4117* ––––
(1.9539)
INNT
+
–––– –––– 0.0503***
(4.1257)
INNT
−
–––– –––– 0.0361***
(4.1257)
ECT(−1) −0.6242*** −0.6255*** −0.8467***
No e: * and *** depic significance a 10% and 1%, espec i ely.
JOURNAL OF APPLIED ECONOMICS 59
inc ease in he echnological inno a ion inc eased indus ialisa ion by 0.0264%. Despi e he
small alue o TINN-MVA, i emains an effec i e ool o indus ialisa ion in bo h he long
e m and sho e m. Du a, Lan in, and Wunsch-Vincen (2018) epo ed ha Sou h A ica
anked 58
h
among he mos inno a i e na ions and 7
h
among middle-income economies,
which emains unimp essi e o his da e. Based on echnological inno a ion, Sou h A ica is
s ill behind o he de eloping na ions like China and India. Beyond ha , i was equally
impo an o check whe he [o no ] a co-in eg a ion exis s among ADCS, TINN, and
indus ialisa ion. Fi s , he F-s a is icswe ecompu edwi h helowe anduppe c i ical
alue, which was ound o be 4.7785 and s a is ically significan a he le el o 5%. Thus, he
hypo hesis o no co-in eg a ion was fi mly ejec ed, offe ing empi ical e idence ha he
ADCS, TINN, and indus ialisa ion ha e a long- e m ela ionship. Second, he coefficien s
and sign o e o co ec ion e m (ECT) we e examined o alida e possible long- un linkage
be ween among ADCS, TINN, and indus ialisa ion. As seen in Table 5, he nega i e and
significan (a 1%) coefficien o he ECT o he Specifica ion (1) confi med he exis ence o
long- un associa ion among a iables.
Mo eo e , he long- un es ima es o NARDL model (Specifica ion 2) in e ed ha he
posi i e and nega i e componen s a e posi i e. The elas ici y alues o ADCS owa ds
indus ialisa ion we e 0.6059 (inc ease) and 0.6582 (dec ease). This means ha a 1%
inc ease (dec ease) in ADCS causes an upsu ge (decline) in indus ialisa ion by 0.61%
(0.66%). The long- un nega i e componen o ADCS was ound o be s a is ically
significan a 10% le el o significance bu he posi i e componen a 1%. The nega i e
componen o ADCS was concluded o be s a is ically insignifican . Based on he diffe en
s a is ical significance and he magni ude o he compu ed elas ici ies, a ia ions in he
ADCS eflec ed an asymme ic effec on indus ialisa ion in he long- un in Sou h A ica.
In addi ion o he abo e, he esul s o NARDL (sho - un) demons a ed ha posi i e
and nega i e componen s a e posi i e. The elas ici y alues o ADCS owa ds indus-
ializa ion we e 0.3790 (inc ease) and 0.4117 (dec ease), sugges ing ha 1% inc ease
(dec ease) in ADCS inc eases (dec eases) indus ializa ion by 0.38 (0.41) pe cen . Also,
he posi i e componen o ADCS was ound o be s a is ically significan a 1% le el o
significance, bu he nega i e componen was ound o be insignifican . Based on he
s a is ical significance and magni ude o elas ici ies, a ia ions in he ADCS changes
appea o ha e an asymme ic effec on indus ialisa ion in he sho - un in Sou h A ica.
Table 6, showing he ou come o he Wald es , indica ed ha he null hypo hesis o
asymme ical effec s o bo h long- un and sho - un was accep ed, p o iding s ong
suppo o bo h he long and sho - e m asymme ic effec s.
Cong uen wi h abo e, he na u e o da a demons a ed ha he ADCS (on a e age)
expanded by 5.50% du ing 1980–2014. Wi h he ADCS alues showing 44.79% (highes )
and −17.17% (lowes ), i was concluded ha he posi i e shocks in ADCS ha e a significan
impac on indus ialisa ion. Specifica ion 3 esul s depic ed ha he posi i e and nega i e
componen s o TINN we e ound o be posi i e. The elas ici y o TINN-indus ializa ion
inc eased (dec eased) by 0.0594 (0.0437), sugges ing ha a 1% inc ease and dec ease in TINN
inc eased and dec eased indus ialisa ion by 0.0594% (0.0437%), espec i ely. The long- un
posi i e and nega i e componen s o TINN we e ound o be s a is ically significan a 1% le el
o significance. In he same way, he sho - un es ima es o NARDL (Specifica ion 3) showed
ha he posi i e and nega i e componen s o TINN we e posi i e and significan (a 1% le el
o significance). The elas ici y alues o TINN- indus ialisa ion indica ed ha a 1% inc ease
60 M. AHMAD ET AL.
(dec ease) in TINN caused an upsu ge (decline) in indus ialisa ion by 0.0503% (0.0361%).
Table 6, demons a ing he esul s o he Wald es , p o ed ha he null hypo hesis o
asymme ical effec s in bo h he long and sho - un was accep ed, p o iding s ong suppo
o long and sho - e m asymme ic effec s o TINN changes on indus ialisa ion, espec i ely.
As a final s ep, se e al diagnos ic es s we e u ilised o alida e he compu ed ou comes o
Specifica ion 1, 2 and 3. Table 7 exhibi s he esul s o alida ion es s, comp ising o he LM
es o Se ial co ela ion, B eusch-Pagan God ey es o He e oskedas ici y, and Ramsey Rese
es . All hese es s sugges ed ha he compu ed model was e o - ee. As shown in Figu e 7,8,
and 9, he CUSUM es u he alida ed he s abili y o he model o he yea s 1980–2014.
5. Conclusion and policy ecommenda ions
Consump ion expendi u es and echnological inno a ion a e impo an componen s o
economic g ow h and de elopmen . Any changes in consump ion expendi u es and
echnological inno a ion no only b ing a change in economic g ow h bu also affec s he
indus ialisa ion p ocess in de eloping economies. These wo ac o s a e no always con-
s an gi en ha hey a e highly esponsi e o economic shocks. In esponse, he cu en
s udy was conduc ed o analyse he possible symme ical & asymme ical ela ionship
among ADCS, TINN, and indus ialisa ion using a ious econome ic echniques. The
esul s o he uni - oo es s sugges ed ha indus ialisa ion, TINN, and ADCS we e I(1)
o de in eg a ions, while he ARDL bound es alida ed he exis ence o long- un linkage
be ween ADCS and indus ial alue-added (indus ialisa ion). The long- un alue o
ADCS-MVA e ealed ha a 1% upsu ge in ADCS causes an inc ease in MVA by 0.59%
in he long un. The e o -co ec ion e m alue was ound o be nega i e and s a is ically
significan a 1% le el. The sho - un alue o ADCS-MVA indica ed ha a 1% upsu ge in
ADCS leads o an inc ease in MVA by 0.67% in he sho un. Fu he mo e, he impac o
posi i e and nega i e componen s o ADCS and TINN on indus ialisa ion we e analysed
h ough non-linea ARDL model. The empi ical model e ealed ha he posi i e shock in
Table 6. Tes ing Hypo hesis o an asymme ical effec .
Null Hypo hesis
Al e na i e
Hypo hesis F-S a is ic Decision
Γþ
3ς1¼
Γ
4ς1Γþ
3ς1ÞΓ
4ς1
4.7602*** Long- un asymme ic ela ionship be ween ADCP and
indus ialisa ion
ζþ
iΓ5¼
ζ
iΓ5ζþ
iΓ5Þζ
iΓ5
4.2772*** Sho - un asymme ic ela ionship be ween ADCP and
indus ialisa ion
Γþ
9Γ7¼
Γ
10
Γ7Γþ
9Γ7ÞΓ
10
Γ7
5.3013*** Long- un asymme ic ela ionship be ween TINN and
Indus ializa ion
#þ
iΓ11 ¼
#
iΓ11 #þ
iΓ11Þ#
iΓ11
4.3087*** Sho - un asymme ic ela ionship be ween TINN and
indus ialisa ion
No e: *** depic significance 1%, espec i ely.
Table 7. Valida ion es .
Tes Specifica ion 1 Specifica ion 2 Specifica ion 3
LM Tes 0.2223 2.1113 0.9200
(0.8948) (0.3480) (0.6313)
BPG 1.6564 1.6564 3.2169
(0.7673) (0.7673) (0.6666)
RESET Tes 0.0030 0.7225 0.5743
(0.9566) (0.4031) (0.4553)
JOURNAL OF APPLIED ECONOMICS 61
ADCS has a posi i e and s a is ically significan influence on indus ializa ion in bo h he
sho un and long un, while he nega i e shock in ADCS has a posi i e and s a is ically
significan impac on indus ializa ion in bo h he sho un and long un, while he esul s
also showed ha he posi i e and nega i e shock o TINN ha e a posi i e and s a is ically
significan influence on indus ializa ion in bo h he sho un and long un. The Wald es
confi med ha an asymme ical ela ionship be ween ADCS and indus ialisa ion, and
be ween TINN and indus ialisa ion.
Gi en he cu en findings, his s udy offe s some impo an policy implica ions. Fi s ,
ADCS is an impe a i e ac o o indus ialisa ion in bo h he sho un and long un, and hus,
he go e nmen should o mula e policies and s a egies o enhance sus ainable household
consump ion o enhance he de elopmen o he indus ial sec o . Fo his pu pose,
-16
-12
-8
-4
0
4
8
12
16
86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
CUSUM 5% Signi icance
Figu e 7. CUSUM Plo o Specifica ion 1.
-16
-12
-8
-4
0
4
8
12
16
88 90 92 94 96 98 00 02 04 06 08 10 12 14
CUSUM 5% Signi icance
Figu e 8. CUSUM Plo o Specifica ion 2.
62 M. AHMAD ET AL.

go e nmen s a e expec ed o play an ins umen al ole in accele a ing household ac i i ies by
suppo ing he comme cial ini ia i es o he p i a e sec o , enhancing he uni o mi y and
coo dina ion o policies, and gua an eeing he p o ision o in as uc u e, and s eng hening
exis ing policies. Second, he p esen finding showing he posi i e associa ions be ween TINN
and indus ialisa ion implies ha he go e nmen should ocus on p omo ing and unding
inno a i e ac i i ies. Tha said, such ini ia i es would equi e a sound financial sys em,
suppo ed by banks and o he financial ins i u ions. The banking sec o , a p ima y sou ce o
financing along wi h paymen agen s o he go e nmen , should be encou aged o suppo
inno a ion-financing. Thi d, he esul s also call o suppo ing echnological-based fi ms
h ough comp ehensi e ax incen i es and inno a ion-financing p og ams. Fou h, he ole
o posi i e and nega i e componen s o TINN in he p ocess o indus ialisa ion canno be
unde es ima ed gi en he asymme ical associa ion be ween TINN and indus ialisa ion. Thus,
go e nmen is expec ed o o mula e hei policies in such a way ha ins i u ions can p o ide
financial suppo o fi ms and en ep eneu s, i espec i e o economic si ua ion.
The cu en s udy en ails he ollowing limi a ions. Fi s , he cu en s udy is limi ed o Sou h
A icaonly.Pe haps,asimila s udycanbeconduc ed o o he de eloping economies, especially
o he newly indus ialised na ions. Second, his s udy used pa en applica ions as a p oxy o
echnological inno a ion. Howe e , esea che s a e encou aged o inco po a e esea ch and de el-
opmen expendi u es as a p oxy o inno a ion. Thi d, his s udy is based on he agg ega e le el
analysis, bu u u e esea ch can be conduc ed a he fi ms-le el o mo e in-dep h insigh .
Disclosu e s a emen
No po en ial conflic o in e es was epo ed by he au ho s.
No es on con ibu o s
Manzoo Ahmad was bo n a Khybe Pakh unkhwa P o ince, Pakis an, in 1987. He ecei ed MS
deg ee in Economics om Abdul Wali Khan Uni e si y Ma dan, Ma dan, Pakis an, in Feb ua y
-16
-12
-8
-4
0
4
8
12
16
88 90 92 94 96 98 00 02 04 06 08 10 12 14
CUSUM 5% Signi icance
Figu e 9. CUSUM Plo o Specifica ion 3.
JOURNAL OF APPLIED ECONOMICS 63
2016. He is s udying o a PhD deg ee in Applied Economics, Nanjing Uni e si y, Nanjing, China.
His cu en esea ch in e es s include Economics o Inno a ion, En i onme al Economics and
Ene gy Economics.
D . Shouka Iqbal Kha ak was bo n a Ka ak, KPK P o ince, in Pakis an. In Decembe 2008, he
ecei ed his MBA om B ad o d School o Managemen , B ad o d, Uni ed Kingdom. In July 2018,
he comple ed his doc o al deg ee in Managemen Sciences om he School o Managemen a
Xiamen Uni e si y, China. Since Feb ua y 2019, he has been wo king as an associa e p o esso a
he College o Business Adminis a ion, Jimei Uni e si y, Xiamen, China. His esea ch in e es s
include co po a e managemen , s a egic human esou ces managemen , s a egy de elopmen ,
ene gy, sus ainabili y, o ganiza ional beha io , in e na ional ma ke ing, highe educa ion, leade -
ship, inno a ion, and en ep eneu ship.
Shehzad khan is wo king as Assis an P o esso in Ins i u e o Business S udies & Leade ship,
Abdul Wali Khan Uni e si y Ma dan, Pakis an. He is eaching ad anced finance cou ses o
pos g adua e s uden . His majo a ea o esea ch is in o ma ion asymme y, co po a e finance,
economics, and financial econome ics. He has ecei ed PhD deg ee in Finance om Uni e si i
Teknokogi Malaysia (UTM), Malaysia.
Zia U Rahman was bo n a Khybe Pakh unkhwa P o ince, Pakis an, in 1989. He ecei ed
mas e 's deg ee in Wo ld Economics om Beijing No mal Uni e si y China, in July 2017. He is
s udying o a PhD deg ee in Wo ld Economics, Xiamen Uni e si y China. His cu en esea ch
in e es s include in e na ional economics, ene gy, economics, en i onmen al economics, and
de elopmen al economics.
ORCID
Manzoo Ahmad h p://o cid.o g/0000-0002-1152-2096
Shouka Iqbal Kha ak h p://o cid.o g/0000-0002-1348-4169
Shehzad Khan h p://o cid.o g/0000-0002-5571-8883
Zia U Rahman h p://o cid.o g/0000-0001-5203-3881
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