February 14th, 2015
(written by lawrence krubner, however indented passages are often quotes). You can contact lawrence at: email@example.com
As developed economies have substituted away from manufacturing towards services, so too have developing countries – to an even greater extent. Such sectoral change may be premature for economies that never fully industrialised in the first place. This column presents evidence that countries with smaller manufacturing sectors substitute away from manufacturing to a larger extent, suggesting a trade channel through which falling international relative prices of manufacturing lead price-taking developing economies to substitute accordingly.
Mention ‘deindustrialisation’ and the image comes to mind of advanced economies making their way into the post-industrial phase of development (Ramaswamy and Rowthorn 1997). But the more dramatic trend is deindustrialisation in the developing countries. This is appropriately called premature deindustrialisation, since it means that many (if not most) developing nations are becoming service economies without having had a proper experience of industrialisation.
Latin America appears to be the worst hit region. But worryingly similar trends are very much in evidence in bub-Saharan Africa too, where few countries had much industrialisation to begin with. The only countries that seem to have escaped the curse of premature industrialisation are a relatively small group of Asian countries and manufactures exporters. The advanced countries themselves have experienced significant employment de-industrialisation, but manufactures output at constant prices has held its own comparatively well in the advanced world – something that is typically overlooked since so much of the discussion on deindustrialisation focuses on nominal rather than real values.