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Industrialisation and De-Industrialisation in the Developing World 3

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Industrialisation and De-Industrialisation in the Developing World 3 www.merit.unu.edu number 3, 2020 Overview Many middle-income developing Industrialisation and countries are experiencing stalled industrialisation or ‘premature de-industrialisation’. Premature de- De-Industrialisation in industrialisation refers to an empirical observation that some the Developing World developing countries have reached ‘peak manufacturing’ in employment and GDP shares at lower levels than ince the 1990s, many middle-income developing countries have experi- earlier industrialisers. In other words, Senced processes of stalled industrialisation or ‘premature de-industriali- the opportunities manufacturing sation’ (a term first coined by UNCTAD) accompanied by a tertiarisation of presents for economic development employment and /or value-added. Put simply, this means that the social and and employment creation are being economic benefits that manufacturing presents are being exhausted earlier than exhausted earlier and with fewer of has historically been the case. These contemporary patterns of economic devel- the benefits that have typically accrued opment are now well documented in a general sense in many middle-income to countries through manufacturing. developing countries. Such trends are likely to exacerbate global income This brief discusses the phenomenon inequality between countries and within countries by weakening economic and the policy implications for growth (and impacting on inequality between countries) as well as weakening developing countries looking ahead. low and medium skill employment generation (and thus impacting on within- country inequality) in developing countries. Written by Andy Sumner, King’s College London (1). Edited by Howard The ‘New Normal’ Path of Economic Development Hudson, UNU-MERIT It is now well established how the structure of an economy can change © United Nations University 2020 through economic development (e.g. Chenery, 1960; Chenery and Syrquin, ISBN 978-92-808-5014-7 1975; Kuznets, 1965; Syrquin, 1988). Specifically, agriculture dominates employment and value-added at low levels of GDP per capita. The share of agri- Licensed under the Creative Commons culture diminishes as GDP per capita rises (to very low shares at high income). Deed ‘Attribution-NonCommercial- In contrast, manufacturing follows an inverted-U pattern as manufacturing NoDerivs 2.5’ shares are small at low GDP per capita levels and rise over time to a peak before falling again. Finally, the service sector share is low at low levels of GDP per The views expressed in this publication capita and rises over time to very high levels at high GDP per capita. Duarte and are those of the authors and do not Restuccia (2010, p. 135) empirically concur with this historic research and note: necessarily reflect the views of United Nations University. ...all countries follow a common process of structural transformation. First, all coun- tries exhibit declining shares of hours in agriculture, even the most advanced countries in this process, such as the United Kingdom and the United States. Second, countries at an early stage of the process of structural transformation exhibit a hump-shaped share of hours in industry, whereas this share is decreasing for countries at a more advanced stage. Finally, all countries exhibit an increasing share of hours in services. www.unu.edu This ‘traditional’ pattern of structural Studies of Industrialisation and transformation is now in question. In De-industrialisation fact, it is now likely to be harder than Many seminal studies exist has historically been the case to which detail ‘good’ and ‘bad’ de- achieve the ‘traditional’ pathway of industrialisation in OECD coun- structural transformation – industri- tries. The former, ‘good’ alisation. Furthermore, new pathways de-industrialisation, generally entails – tertiarisation – may become a ‘new new employment to absorb laid-off normal’ at lower levels of per capita manufacturing workers in tertiary income than earlier developers expe- sectors (see Alderson, 1999; Bacon rienced, which has implications for and Eltis, 1976; Bazen and employment growth, real wage Thirlwall, 1986, 1989, 1992; growth, and value-added. Blackaby, 1978; Bluestone and Harrison, 1982; Cairncross, 1979; Kim and Sumner (2019) Fontagné and Harrison, 2017; De present a typology of varieties of Groot, 2000; Kucera and Milberg, structural transformation. They 2003; Linkon, 2018; Rowthorn and identify patterns of industrialisation Ramaswamy, 1997; Saeger, 1997; – primary and upgrading – and pat- Thirlwall, 1982; Wren, 2013). There About the Author terns of ‘new’ economic development, is also a set of influential papers namely, stalled industrialisation and Andy Sumner is a Professor of which discuss the inverted-U curve International Development at de-industrialisation. Figure 1 shows of manufacturing shares of employ- King’s College London. He is also this typology. The typology is based ment in OECD countries as the Director of the UK Economic and on the changes in manufacturing Social Research Council (ESRC) defining pattern of de-industrialisa- value-added and employment shares Global Challenges Strategic tion (e.g. Rowthorn and Wells, 1987; in the post-1990 period. The cate- Research Network on Global Rowthorn and Coutts, 2004; gorisation has been constructed Poverty and Inequality Dynamics. Rowthorn and Ramaswamy, 1997; He has 20 years’ international based on the recent direction of Singh, 1977, 1987). research experience using both changes in the manufacturing shares qualitative and quantitative and not on the absolute levels of methods and has published Caution is needed when those shares. It is important to note extensively, including ten books using these studies as a template for that not all developing countries and fifty journal papers and middle-income developing countries would fit neatly into this typology. book chapters. His most recent because the effects of de-industriali- books are ‘Global Poverty’ (2016, More precisely, these varieties are not sation may be different in the con- Oxford University Press) and suited for very poor and aid-depen- temporary developing world. This is ‘Development and Distribution’ dent developing countries that (2018, Oxford University Press). because the process is happening at remain largely agrarian or for those He was appointed at King’s lower levels of both per capita which are heavily dependent on the in 2012 and was a founding income and ‘peak manufacturing’ (in mining sector. A separate analysis is Co-Director of the King’s terms of value-added and employ- International Development needed for these countries. It is also ment shares) than was historically Institute, which later became important to note that countries are the case. Furthermore, contemporary the Department of International not fixed within the variety of struc- Development. He is also a de-industrialisation occurs at a dif- tural transformation to which this member of the ESRC Peer Review ferent point in history wherein analysis has assigned them. Shifting College. Correspondence to: global production is now highly frag- between different varieties is possible [email protected] mented into global value chains and, in some cases, desirable. (GVCs). Moreover, in middle- income developing countries, the 2 Policy Brief www.merit.unu.edu Figure 1. Varieties of Industrialisation and De-industrialisation. Source: Elaborated from Kim and Sumner (2019), by Arief Anshory Yusuf welfare regime mechanisms mitigat- ences, and well-established firms ing the impact of de-industrialisa- that lead GVCs. All of these yield tion – ranging from unemployment positive reputational effects, e.g. benefits and pensions to access to ‘made in France’ for leather products health and retraining programmes – or ‘made in Germany’ for automotive are weaker and cover a lower share products. In upstream, science- of the population than in advanced intensive activities (e.g. new materi- economies. It is also unlikely that als, pharmacological research, and middle-income developing countries aerospace), middle-income develop- can respond to de-industrialisation ing countries compete with advanced by mimicking advanced economies; economies who are worried about that is, focusing on downstream, losing their dominance and with higher-value service activities (e.g. countries that challenge Western marketing and the development of dominance for industrial and geopo- creative content) or upstream activi- litical reasons, such as China. All of ties linked to science and technology. the latter heavily subsidise these In downstream activities, advanced activities in order to either keep or economies benefit from having con- capture the higher value-added sumers with higher incomes, a freer GVC access points. civil society, world class universities in the creative industries and sci- Industrialisation and De-industrialisation in the Developing World 3 www.unu.edu In short, although much can country studies (e.g. for Malaysia, be drawn from the research on devel- see Henderson and Phillips 2007; oped countries, caution is needed Rasiah 2011; Tan 2014; for because the effects of de-industriali- Indonesia, see Manning and sation are likely to be different in Purnagunawan 2017; for Mexico, see developing countries. Furthermore, Cruz 2014; for Chile, see Gwynne the policy implications that are pro- 1986; for Pakistan, see Hamid and moted (e.g. raising education levels Khan 2015; and for Brazil, see and freer movement of labour) are Jenkins 2015; Cypher 2015). often abstract and not
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