10+11. Structural Transformation and Growth: Income inequality between countries Flashcards
Slide 5 Graph: Growth rate differentials in advanced vs. developing countries
The first decade of the 21st century was extraordinarily good for developing countries and their mostly poor citizens. Their economies expanded at unprecedented rates, resulting in both a large reduction in extreme poverty and a significant expansion of the middle class.
In fact, their growth rates were an average 4 PERCENTAGE FASTE THAN THOSE OF ADVANCED COUNTRIES—versus only 1.3 percentage points in the 1990s (Figure 22)
This growth was led by the EFFORTS OF CHINA, INDIA and a small number of other Asian countries, and ASSISTED BY THE WEAKER ECONOMIC PERFOMANCE OF THE RICH COUNTRIES.
Slide 6 Graph: Rise of developing countries
As a result, the developing countries moved more quickly to CLOSE INCOME GAP WITH THE ADVANCED COUNTRIES (Figure O.1b), a process known as ECONOMIC CONVERGENCE.
More RECENTLY, however, that process has slowed down—reflecting a NARROWING OF THE ADVANCED AND DEVELOPING COUNTRY GROWTH RATE DIFFERENTIALS SINCE 2010—making it unlikely that poorer countries will be able to close the development gap with richer countries anytime soon.
In order for developing countries to close the development gap with richer countries, their growth rate should be much higher than that of rich countries.
APPROACHES TO GROWTH:
What are the growth prospects for developing countries? Name two traditions for examining and explaining growth.
1) DUAL-ECONOMY APPROACH:
–> ROOTS IN DEVELOPMENT ECONOMICS
–> SHARP DISTINCTION BETWEEN TRADITIONAL (AGRICULTURE) AND MODERN (INDUSTRY) SECTORS OF THE ECONOMY
–> TWO SECTORS CAN’T BE AGGREGATED TOGETHER.
–> ACCUMULATION, INNOVATION AND PRODUCTIVITY GROTH ALL TAKE PLACE IN THE MODERN SECTOR—often in unexplained ways
–> THE TRADITIONAL SECTOR REMAINS TECHNOLOGICALLY BACKWARD AND STAGNANT.
–> !!! GROWTH DEPENDS ON THE RATE AT WHICH RESOURCES- PRINCIPALLY LABOR- CAN MIGRATE FROM THE TRADITIONAL TO THE MODERN SECTOR.
—> THERE IS A GROWTH PROCESS AMONG SECTORS!!!
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2) NEOCLASSICAL APPROACH:
–> ROOTS IN MACROECONOMICS and derives from the NEOCLASSICAL GROWTH MODEL OF SOLOW.
—> AGGREGATES DIFFERENT TYPES OF ECONOMIC ACTIVITY INTO A SINGE REPRESENTATIVE SECTOR.
–> GROWTH DEPENSA ON THE INCENTIVES TO SAVE, ACCUMULATE PHYSICAL AND HUMAN CAPITAL AND BY DEVELOPING NEW PRODUCTS AND PROCESSESG.
–> GROWTH PROCESS WITHIN MODERN SECTORS.
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These traditions offer complementary perspectives on economic growth.
One way to combine their insights is to think of the NEOCLASSICAL model as essentially focusing on the GROWTH PROCESS WITHIN MODERN SECTORS, while the DUAL-ECONOMY model focuses on RELATIONSHIP AND FLOWS AMONG SECTORS.
As such, each perspective provides a distinct reason why growth in the lagging countries should be not just feasible, but also easy and rapid.
In the DUAL-ECONOMY world, GROWTH is just a matter of MOVING TRADITIONAL FARMERS INTO MODERN INDUSTRIES in urban areas where productivity is on a positive trajectory.
In the NEOCLASSICAL world, PHYSICAL AND HUMAN CAPITAL LEVELS IN DEVELOPING COUNTRIES ARE LOW, and thus RETURNS TO ACCUMULATION should be HIGH
In both models, ECONOMIC CONVERGEFENCE WITH RICH NATIONS SHOULD BE THE NORM RATHER THAN THE EXCEPTION!
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Tutorial:
The dual-economy approach is based on the idea that the economy is comprised by two sectors: the traditional sector with lower productivity and the modern sector with higher productivity. In this approach, growth occurs when resources move from the traditional sector to the modern sector. Hence, resources are used in the higher productivity sector, thus increasing output.
Meanwhile, the neoclassical approach stresses the IMPORTANCE OF THE FUNDAMENTALS OF THE ECONOMY I.E. RESSOURCES SUCH AS HUMAN AND PHYSICAL CAPITAL ACCUMULATION AS WELL AS TECHNOLOGICAL PROGRESS.
In this approach, GROWTH OCCURS WHEN THE ECONOMY CAN PRODUCE WITH OVERALL HIGHER PRODUCTIVITY.
The neoclassical also builds upon one representative sector.
What are the two broad DEVELOPMENT CHALLENGES?
ASSUMPTION: ECONOMIC CONVERGENCE WITH RICH NATIONS SHOULD BE THE NORM RATHER THAN EXCEPTION.
But as it turns out, those THIS ASSUMPTION, HOWEVER, HASN’T BEEN BORNE OUT.
Nevertheless, this failure informs us about the obstacles that need to be overcome if economic development is to happen.
Using these two sets of models to guide us, we can identify TWO BROAD DEVELOPMENT CHALLENGES:
1) STRUCTURAL TRANSFORMATION–> REFERS TO THE DUAL-ECONOMY APPROACH
How to ensure that resources flow rapidly to the modern economic activities that operate at higher levels of economic productivity.
2) FUNDAMENTALS–> REFERS TO THE NEOCLASSICAL APPROACH
How to accumulate the skills and broad institutional capabilities needed to generate SUSTAINED PRODUCTIVITY GROWTH, not just in a few modern industrial sectors but also across the entire range of services and other non-tradable activities.
Understanding the relationship between the two seems crucial, especially in the least developed countries.
Describe the RELATIONSHIP BETWEEN TWO BROAD DEVELOPMENT CHALLENGES:
We drew above a distinction between the STRUCTURAL TRANSFORMATION (MOVING RESOURCES FROM TRADITIONAL INTO MODERN INDUSTRIES) AND FUNDAMENTALS (DEVELOPING BROAD CAPABILITIES THA ENSURE SUSTAINED GROWTH).
At first sight, these two challenges may seem one and the same, too closely linked to be separable.
Much of the development literature operates on the assumption that POLICY THAT IS GOOD ON ONE FRONT IS ALSO GOOD ON THE OTHER.
EXAMPLES:
–>INVESTING IN HUMAN CAPITAL and improving the legal regime should be good for BOOSTING OVERALL PRODUCTIVITY (FUNDAMENTALS), as well as PROMOTING INDUSTRIAL EXPANSION (STRUCTURAL TRANSFORMATION).
–>DEREGULATING INDUSTRIAL RESTRICTIONS AND INTERNATIONAL TRADE should be good for developing the economy as a whole (fundamentals), as well as fostering entry into new economic activities (structural transformation).
THE DESIRABLE POLICY FOR GROWTH DOESN’T NEED TO DIFFER BASED ON WHETHER WE LOOK AT GROWTH FROM THE PERSPECTIVE OF FACILITATING STRUCTURAL TRANSFORMATION OR BUILDING FUNDAMENTALS.
!!!BUT STRATEGIC IMPLICATIONS DIFFER:
While there is substantial overlap between the two sets of policies, it is also clear that the two challenges have somewhat different strategic implications.
EXAMPLES:
–> In practice, it may be far EASIER TO PROMOTE INDUSTRIALIZATION DIRECTLY (TRANSITION TO THE RESSOURCES TO THE MODERN - MORE PRODUCTIVE SECTOR), by subsidizing industry in diverse ways or removing specific obstacles to it, THAN TO PROMOTE IT INDIRECTLY BY MAKING BROAD INVESTMENTS in human capital and institutions and hoping that these will trickle down to investment incentives in the industry.
!!! POSSIBLE TO HAVE RAPID STRUCTURAL TRANSFORMATION (in other words, INDUSTRIALIZATION) WITHOUT SIGNIFICANT IMPROVEMENTS IN FUNDAMENTALS.
–> EXAMPLE: CHINA: GOVERNANCE AND HUMAN CAPITAL (FUNDAMENTALS) HAVE LAGGED SIGNIFICANTLY BEHIND THE COUNTRY’S MANUFACTURING PROCESS (STRUCTURAL TRANSFORMATION).
Also POSIIBLE TO INVEST SIGNIFICANTLY IN FUNDAMENTALS WITHOUT REPAING MANY REWARDS IN TERMS OF STRUCTURAL CHANGE.
- ->EXAMPLE: LATIN AMERICA HAS CONSIDERABLY IMPROVED ITS GOVERNANCE AD MACROECONOMIC FUNDAMENTALS, YET STRUCTURAL CHANGE IN THE REGION HAS BEEN GROWTH REDUCING:
- ->Manufacturing and some other MODERN SECTORS HAVE LOST EMPLOYMENT TO LOWER-PRODUCTIVITY SERVICES AND INFORMAL ACTIVITIES.
Slide 10 Graph: Typology of growth patterns and outcomes (relationship between STRUCTURAL TRANSFORMATION and INVESTMENT IN FUNDAMENTALS in a matrix)
We can visualize these possibilities in Figure 24, which depicts a typology of growth patterns and outcomes.
QUADRANT 2: It shows that STRUCTURAL TRANSFORMATION CAN FUEL RAPID GROWTH, BUT IF IT ISN’T BACKED UP BY FUNDAMENTALS, GROWTH ONLY REMAINS EPISODIC.
QUADRANT 3: On the other hand, the ACCUMULATION OF FUNDAMENTALS, which requires costly, time-consuming, and complementary investments across the entire economy, ONLY PRODUCES STEADY BUT SLOW GROWTH IFIT ISN’T BACKED UP BY STRUCTURAL CHANGE.
QUADRANT 4: The bottom line is that, ultimately, SUSTAINED GROWTH AND CONVERGENCE REQUIRE BOTH PROCESS!!!
IMPORTANT: THE STRUCTURAL TRANSFORMATION WILL EVENTUALLY RUN ITS COURSE AND INDUSTRIALIZATION WILL REACH ITS LIMITS.
From that point on, GROWTH MUST DEPEND ON THE STEADY ACCUMULATION OF FUNDAMENTALS EMPHASIZED BY NEOCLASSICAL GROWTH THEORY.
Long-term successes, such as Britain, Germany, and the United States, have all gone through these phases, as have more recent examples, such as Japan, South Korea, and Taiwan.
If DOUBTS REMAIN ABOUT CHINA’S ECONOMIC FUTURE, it is because so much of the country’s INSTITUTIONAL TRANSFORMATION, particularly with respect to political institutions, STILL REMAINS AHEAD OF IT.
Slide 14: Inverse U-shaped manufacturing curve: Explanations for why manufacturing’s share eventually falls
Figure shows the simulated relationship between the 3 MEASURES OF INDUSTRIALIZATIONS:
1) SHARE OF EMPLOYMENT IN MANUFACTURING TO THE GDP/CAPITA
2) SHARE OF THE REAL MANUFACTUING OUTPUT TO THE GDP/CAPITA
3) SHARE OF THE NOMINAL MANUFACTURING OUTPUT TO THE GDP/CAPITA
AND GDP/CAPITA.
The share of manufacturing tends to first rise and then fall over the course of development. There are two possible explanations for why manufacturing’s share eventually falls.
1) DEMAND-BASED EXPLANATION:
–> SHIFT IN CONSUMPTION PREFERENCES AWAY FROM GOODS AND TOWARDS SERVICES.
–> This on its own would not produce the timing difference in peaks, as a PURE DEMAND SHIFT WOULD HAVE SIMILAR EFFECTS OF MANUFACTURING QUANTITIES (OUTPUT AND EMPLOYMENT).
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2) TECHNOLOGICAL EXPLANATION:
–> MORE RAPID PRODUCTIVITY GROWTH IN MANUFACTURING THAN IN THE REST OF THE SECTORS.
–> AS LONG AS THE ELASTICITY OF SUBSTITUTION IS LESS THAN ONE, THIS PRODUCES A DECLINE IN THE SHARE OF MANUFACTURING EMPLOYMENT (IF A WORKER BECOMES MORE PRODUCTIVE - FEWER WORKERS ARE NEEDED), BUT NOT THE DECLINE IN THE SHARE OF MANUFACTURING OUTPUT ( SUPPLY SIDE IS RATHER INELASTIC IN TERMS OF SWITCHING TO ANOTHER SECTOR OF PRODUCTION (FROM MAN. TO SERVICES)/ OR MAY BE IT RATHER REFERS TO INELASTIC DEMAND? not sure….
We need a COMBINATION OF SUPPLY AND DEMAND-SIDE REASONS TO EXPLAIN BOTH THE DECLINE IN MANUFACTURING’ SHARE AND THE LATER TURNAROUND IN OUTPUT COMPARED TO EMPLOYMENT.
Explanation Tutorial
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1) EXPLANATION OF THE INVERSE U-CURVE:
The inverse U-shape indicates that as an economy becomes richer, its manufacturing sector grows. However, the share of the manufacturing sector stops growing at a certain level of income and declines as income grows. AS LONG AS THE ELASTICITY OF SUBSTITUTION IS LESS THAN ONE, THIS PRODUCES A DECLINE IN THE SHARE OF MANUFACTURING EMPLOYMENT, BUT NOT IN THE SHARE OF MANUFACTURING OUTPUT.
2) EXPLANATION FOR THE DIFFERENCES BETWEEN CURVES:
The figure shows that the SAHRE OF MANUFACTURING EMPLOYMENT peaks at a lower level of income compared to the share of nominal and real manufacturing value added. The SHARE OF REAL MANUFACTURING VALUE ADDED, especially, peaks at a higher level of income.
This simulation shows that as an economy becomes richer, FIRST the manufacturing sector ABSORBS MORE EMPLOYMENT. However, as the economy grows, the MANUFACTURING SECTOR CREATES VALUE ADDED WITHOUT ADDING MORE LABOR, I.E RELIES UPON TECHNOLOGICAL PROGRESS THAT CAUSES HIGHER PRODUCTIVITY.
Once the peak of the share of manufacturing sector in terms of real value added is reached, the share of manufacturing sectors declines as CONSUMPTION IN OTHER SECTORS SUCH AS SERVICES RISES WITH INCOME GROWTH –> (probably at this stage, the elasticity of substitution is higher than zero–> demand is more elastic–> consumption rises in other sectors)
3) DOES THIS PATTERN FIT CONVENTIONAL ECONOMIC EXPLANATIONS OF GROWTH (DUAL-ECONOMY OR NEOCLASSICAL APPROACH) two based explanation demand and technology based:
This pattern cannot be explained by either the dual-economy
approach and the neoclassical approach.
–> If demand for manufacturing goods declines due to income growth, then we should see the peaks of the curves to be the same (i.e. of employment and output share)
–> If technological progress spurs the manufacturing sector, then we should see declines in the share of manufacturing employment but not in the share of manufacturing value added or output, as long the elasticity of substitution is less than 1.
Hence, it must be that a combination of both forces come into play.
Slide 16 Graph: Explaining the inverse U-shaped manufacturing curve: RELATIVE PRICE OF MANUFACTURING
THE RELATIVE PRICE OF MANUFACTURING TENDS TO DECLINE AS COUNTRIES GET RICHER, tending to depress the share of MVA to GDP (manufacturing output) at current prices.
Figure 2 displays the pattern for four of the countries in our sample. The relative price of manufacturing has more than halved in the United States since the early 1960s. Great Britain has experienced a somewhat smaller decline. In South Korea, which has grown extremely rapidly, manufacturing’s relative price has come down by a whopping 250 %. In Mexico, meanwhile, relative prices have remained more or less flat.
DEINDUSRIALIZATION –> SHIFT AWAY FROM MANUFACTURING TO SERVICES over time (Rodrok 2016):
1) Did countries deindustrialize more rapidly recently?
2) What would the underlying explanations be?
3) What would the the growth implications be for developing
countries ?
As the graph on the slide 14 makes clear, deindustrialization is the common fate of countries that are growing. Interest of Rodrik here is to check WHETHER DEINDUSTRIALIZATION HAS BEEN MORE RAPID IN RECENT PERIODS.
mansharei t = β0 + β1 ln popi t + β2 (ln popi t )2 + β3 ln yi t + β4 (ln yi t )2+iγi Di +TϕT PERT + i t
- In eq. (30), manshareit denotes either one of manemp (manufacturing employment share), nommva (manufacturing output at current prices), reamva (manufacturing output at constant prices) in country i in year t ;
- pop refers to population and y to GDP per capita ;
- Di are country fixed effects capturing variables such as geography, endowments, history ;
- PERT refers to decadal period dummies from the 1960s to the
post-2000 (until 2012) years (these time trends are the main focus, as the estimate on ϕT obtains the effects of common shocks relative to pre-1960 (the excluded base).
Finally, Eit it is an idiosyncratic error term.
Slide 19 Table: HAVE COUNTRIES DEINDUSTRIALIZED MORE RAPIDLY? (Rodrik 2016)
Table 2 shows two versions of the baseline results for each of our three measures of manufacturing industry, manemp, nommva, and reamva. Columns (1)–(3) are restricted to a common sample so that the results are directly comparable across the measures. We consider only common sample.
The results for manemp and nonmva are very similar across the two specifications. In both cases, we find a sizable and significant negative trend over time, larger for manemp than for nonmva.
Using the estimates from the common sample, the average country in our sample had a level of manemp that stood 11.7 percentage points lower after 2000 than in the 1950s, and 8.8 percentage points (0.117–0.029) lower than in the 1960s. The corresponding reductions for nommva are 8.5 and 7.4 % points, respectively. The declines in realmva are smaller, and in the common sample show up significantly only for the post-1990 period. Depending on whether we use the common or largest sample, the post-2000 negative shock is 3.5–5.9 % points relative to the pre-1960 period.
Once again, THE STORNGEST DOWNWARD TREND OVER TIME IS FOR THE SAHRE OF MANUFACTURING EMPLOYMENT, a reduction of 6.5% points compared to the 1970s. (This matches up well with the corresponding number of 7.3% points (0.117–0.044) from Table 2.)
The decline in nommva is 3.0 or 5.2 points over the 1970s, depending on which series is used. Finally, the decline for realmva is 0.9–2.4 points.
Slide 24-26 Graph: HAVE COUNTRIES DEINDUSTRIALIZED MORE RAPIDLY? (Rodrik 2016)?
What are the causes of the downward trends of manufacturing employment share, nominal manufacturing output share at current prices, real manufacturing output share at constant prices comparing BY COUNTRY GROUP.
We can obtain some insight about the causes of these trends by looking at DEINDUSTRIALIZATION PATTERNS IN DIFFERENT COUNTRY GROUPS SEPARATELY.
This is interesting because we expect different period trends given regional income and demographic trends. We will see that REGIONAL DIFFERENCES IN INDUSTRIALIZATION ARE SUBSTANTIAL AND DEPEND ON THE INDUSTRIALIZATION MEASURE. This is done on the slides 24, 25, 26 for manemp, nommva, and realmva, respectively. In each table, the baseline regression is run for the following groups: (a) developed countries; (b) Latin American countries; (c) Asian countries d) Sub-Saharan Africa e) Sub-Saharan Africa
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- Slide 24, 25, 26: Deindustrialization over time.
–> First, we observe LARGE REDUCTIONS IN MANEMP AND NONMVA BUT NOT IN REALMVA IN DEVELOPED COUNTRIES.
The estimated coefficients for the period dummies for realmva are in fact positive (but statistically insignificant) for the developed countries in recent decades.
This is to be compared with significant NEGATIVE ESTIMATES FOR LATIN AMERICA AND AFRICA (once Mauritiusis excluded).
To be clear, THIS DOESN’T MEAN THAT THE RICH NATIONS HAVEN’T EXPERIENCED REDUCTIONS IN REAL MANUFACTURING OUTPUT SHARES IN GDP. IT SIMPLY MEANS THAT INCOME AND DEMOGRAPHIC TRENDS DRIVE THE DECLINE IN REAL MANUFACTURING OUTPUT SHARES/GDP.
The results for Asia are even more striking. ASIA is the only region for which recent period dummies are NOT NEGATIVE FOR MANEMP. And the estimates for REALMVA IN RECENT PREIDOS ARE ACTUALLY POSITIVE AND STATISTICALLY SIGNIFICANT.
These results suggest that ASIA - HEAD OF THE GLOBAL TREND IN MANUFACTURING EMPLOYMENT, it has managed to maintain stronger manufacturing performance than would be expected on the basis of its income and demography, i.e given population and GDPs, we would have expected stronger declines.
The region that has done the worst is LATIN AMERICAL, which has the MOST NEGATIVE EFFECTS FOR MANEMP AND REALMVA. The EFFECTS FOR NOMMVA ARE NOT AS PRONOUNCED, SUGGESTING THAT RELATIVE PRICES HAVEN’T MOVED THERE AGAINST MANUFACTURING NEARLY AS MUCH AS IN OTHER REGIONS.
Finally, the estimates for sub-Saharan Africa depend heavily on whether MAURITIUS- A STRONG MANUFACTURES EXPORTER – is included in the sample or not.
WITHOUT MAURITIUS, SUB-SAHARAN AFRICAN COUNTRIES EMERGE AS LARGE LOSERS ON THREE MEASURES OF INDUSTRIALIZATION.
Their output deindustrialization in recent decades looks especially dramatic in light of the strong showing for realmva in the 1970s (captured by a positive and significant coefficient for dum1970s in Table 6). Since sub-Saharan countries are still very poor and widely regarded as the next frontier of labor-intensive export-oriented manufacturing, these are quite striking findings, i.e SUB-SAHARAN AFRICA IS ESPECIALLY UNDERDEVELOPED AND WE WOULD EXPECT TO OBSERVE THEM ON THE UPWARD SLOPING PART OF THE MAUFACTURING U-CURVE, INSTEAD OF OBSERVING DOWNWARDS MANUFACTURING TRENDS (STILL ON THE LOW INCOME LEVEL- MANUFACTURING SHARE SHOULD BE THEORETICALLY HIGH)
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TUTORIAL:
B) PLEASE SUMMARIZE THE REGIONAL DIFFERENCES IN TABLES 11-13 IN A FEW SENTENCES:
–> LATIN AMERICA countries have experienced large negative
trends in manufacturing sectors recently, especially in terms of manufacturing employment and real manufacturing value added. The
downward trend in nominal manufacturing value added is not as deep
suggesting that the impact of the decline in relative price has not been
as severe to these countries.
–> Meanwhile, SUB-SAHARAN AFRICAN COUNTRIES countries (excl. Mauritius) have experienced deindustrialization in all three terms of manufacturing sector shares in recent decades despite positive growth of industrialization in the 1970s.
–> In contrast, ASIAN COUNTRIES have escaped the deindustrialization trend. Despite the manufacturing employment shares have stood relatively stagnant over time, the real manufacturing value added shares have grown over time.
Globalization as driver of regional deindustrialization: We now turn to studying an explanation for these geographical differences in more detail + Slide (29)
The results with respect to Asia and the difference that the inclusion of Mauritius makes to the African performance strongly suggests that these variations in outcomes are related to PATTERNS OF COMPARATIVE ADVANTAGE OF SPECIFIC COUNTRIES, and, in particular, HOW WELL OR POORLY COUNTRIES HAVE DONE IN GLOBAL TRADE IN MANUFACTURES.
To test this idea, we DIVIDE the SAMPLE OF COUNTRIES INTO TWO GROUPS:
1) MANUFACTURES EXPORTERS: if the share of manufactures in exports exceeds 75 % & if the share of manufactures in exports exceeds the corresponding share in imports
2) NON-MANUFACTURES EXPORTERS:
The results, shown on the Slide 29, support the COMPRATIVE-ADVANTAGE HYPOTHESIS. Regardless of the criterion used, THE EMPLOYMENT LOSS IN MANUFACTURES EXPORTERS IS SMALLER.
Whereas the period EFFECTS FOR RELMAVA ARE STRONGLY NEGATIVE AND SIGNIFICANT FOR MANUFACTURE NON-EXPORTERS, they change sign and are occasionally significant for manufactures exporters–> NON-EXPORTERS PRODUCE LESS MANUFACTURED OUTPUT
In sum, THE GEOGRAPHICAL PATTERNS OF DEINDUSTRIALIZATION SEEM CLOSELY LINKED TO GLOBALIZATION.
Our results apparently reflect the SIZABLE SHIFT IM GLOBAL MANUFACTURING ACTIVITY IN RECENT DECADES TOWARDS EAST ASIA AND CHINA IN PARTICULAR, WIHT BOTH LATIN AMERICA AND SUB-SAHARAN AFRICA AMONG THE DEVELOPING REGINS AS LOSERS.
COUNTRIES WITH A STRONG COMPARATIVE ADVANTAGE IN MANUFACTURING HAVE MANAGED TO AVOID DECLINES IN REAL MANUFACTURING OUTPUT SHARES AND EMPLOYMENT LOSSES HAVE BEEN LESS SEVERE (E.G. CHINA)
Interestingly, on the output side, it appears that the brunt of globalization and the rise of Asian exporters has been borne (подтверждается) by other developing countries, rather than the advanced economies.
Slide 31: Employment deindustrialization by SKILL GROUPS
We have already examined deindustrialization over time (generally), deindustrialization by country group, concluding that globalization acts as a driver for regional deindustrialization (based on the notion of comparative advantage as countries moved to free trade) and now we will examine how deindustrialization affected different types of workers (employment deindustrialization).
Previous results showed that, DEINDUSTRIALIZATION SHOWS UP MOST CLEARLY AND IN ITS STRONGEST FORM IN EMPLOYMENT.
The only COUNTRIES THAT HAVE MANAGED TO AVOID A STEADY DECLINE IN MANUFACTURING EMPLOYMENT ARE THOSE WITH A STRONG COMPARATIVE ADVANTAGE IN MANUFACTURING.
These data provide a BREAKDOWN OF MANUFACTURING EMPLOYMENT BY 3 WORKER TYPES:
1) low-skill
2) medium-skill
3) high-skill.
We run essentially the same RGRESSION as before, with two differences.
DEPENDENT VARIABLE (Y) - MANUFACTURING SHARE OF THE ECONOMY’S TOTAL EMPLOYMENT OF WORKERS OF A PARTICULAR SKILL TYPE.
Second, since the data start from 1995, I use annual dummies rather than decade dummies. (As before, there is a full set of country fixed effects.) This gives us three regressions, one for each skill type.
RESULTS: ALMOST THE ENTIRE REDUCTION IN EMPLOYMENT COMES IN THE LOW-SKILL CATEGORY–> HAS COME DOWN BY 4 PERCENTAGE POINT BETWEEN 1995 AND 2009.
The decline in medium-skill employment is miniscule by comparison, while manufacturing’s share of high- skill employment has actually slightly increased over the same period.
The chart underscores in a dramatic fashion that it is LOW-SKILL WORKERS WHO HAVE BORNE THE LION’S SHARE OF THE IMPACT OF RECENT CHANGES IN TRADE AND TECHNOLOGY ON MANUFACTURING.
Slide 32 Graph: PREMATURE DEINDUSTRIALIZATION?
–> The figure displays manem (manufacturing share of employment to the total employment) p and y levels (income) for the years of peak employment industrialization.
The results suggest that LATE INDUSTRIALIZERS WILL REACH LOWER PEAK LEVELS OF INDUSTRIALIZATION (PEAK MANUFACTURING EMPLOYMENT), THAN THOSE EXPERIENCED BY EARLY INDUSTRIALIZED COUNTRIES.
FOR EXAMPLE:
- -> INDUSTRIALIZATION PEAKED IN BRITAIN, SWEDEN ITALY AT INCOME LEVELS OF $14,000 (in 1990 dollars).
- –> INDIA AND MANY SUB-SAHARAN AFRICAN REACHED THEIR PEAK MANUFACTURING EMPLOYMENT SHARES AT INCOME LEVELS OF $700.
Slide 34 Graph: Premature deindustrialization? Inverse-U. Simulated manufacturing employment and manufacturing output
shares (MVA/GDP at constant prices) shares
–> TO CHECK MORE SYSTEMATICALLY HOW THE INDUSTRIALIZATION INVERSE U-CURVE HAS SHIFTED OVER TIME, run regressions that drop the period dummies and interact the income and income squared terms with a dummy for the post-1990 period. Using the 1990 year as a break-point is somewhat arbitrary.
=SLIDE 34: Figures plot simulated industrialization levels against income for pre- and post-1990 (y-stimulated industrialization levels and x-income levels). We can see how the hump-shaped curves have moved closer to the origin in the latter period (post-1990), in a particularly noticeably way for employment.
To summarize, SINCE 1990 COUNTRIES HAVE REACHED PEAK MANUFACTURING EMPLOYMENT AND OUTPUT SHARES AT INCOMES THAR ARE AROUND 40 % OF THE LEVELS EXPERIENCED BEFORE 1990–> ERALY INDUSTRIALIZERS REACHED THEIR PEAK MANUFACTURING EMPLOYMENT AND OUTPUT SHARES AT HIGHER INCOME LEVELS THAN LATER INDUSTRIALIZERS (POST 1990)
1) Income level for peak manufacturing employment pre-1990: $11048
2) Income level for peak manufacturing employment post-1990: $4273
- –> represents around 40% of the levels experienced in pre-1990.
Statistically significant results, which serve as an evidence for the fact that early industrializers reach higher levels of income for peak manufacturing employment than later indusrializers.
The output effects, which are almost equally large on average, are also quite heterogeneous across different country groups.
1) Maximum share of manufacturing output at constant price (realmva) pre-1990: 27.9%, reaches its peak at $47099
2) Maximum share of manufacturing output at constant price (realmva) post-1990: 24.1%, reaches its peak at $20537
So it is harder to reach a wholesale conclusion for realmva that pre- and post-1990 trends are statistically distinguishable.
