The impact of South Africa's manufacturing output growth on Lesotho's economic growth: An examination of Kaldor's First Law

Purpose -This study investigates the applicability of a modified Kaldor's First Law in the context of Lesotho's economic growth, with particular focus on the role of South Africa's manufacturing sector output as a key driver. Research design/method/approach - This study employs a modified Kaldor's framework, incorporating gross domestic product of Lesotho for economic growth as the dependent variable, Lesotho manufacturing sector output, South Africa's manufacturing sector output, capital investment proxy by gross fixed capital formation of Lesotho, and population of Lesotho as explanatory variables. With date series from 1980 to 2022, the study applied descriptive statistics, correlation analysis, and econometric estimation technique (Autoregressive Distributed Lag modelling) to explore both short-run and long-run period relationships. Findings -The descriptive and correlation analysis highlight the interconnectedness of these variables, with the ARDL bounds test confirming the presence of a long-term cointegration relationship. The results reveal that South Africa's manufacturing sector output indeed have a positive and statistically significant impact on Lesotho's GDP in the long run thereby validating the modified Kaldor's First Law, same is Lesotho capital investment. Practical implication - The study's findings underscore the importance of South Africa's manufacturing sector in driving economic growth in Lesotho, emphasizing the role of cross-border economic linkages. Lesotho can capitalize on the positive spillover effects of South Africa's manufacturing sector, improve its investment climate, and achieve sustainable economic growth. This study contributes to the discourse on Kaldor's Law and intercountry collaboration. Actionable insights for Lesotho's policymakers are suggested. Originality/Value - This study contributes to literature on Kaldor's First Law by extending its application and relevance to inter-country context.