Manufacturing matters…but it’s the jobs that count

Abstract

We assemble a large database of countries’ manufacturing employment and output shares for 1970–2010. We ask whether increased global competition and labor-displacing technological change have made it more difficult for countries to industrialize in employment, and whether there are alternative routes to prosperity. We find that: (1) All of today’s rich non-oil economies enjoyed at least 18% manufacturing employment shares in the past; (2) They often did so before becoming rich; (3) Manufacturing peaks at lower employment shares today (typically below 18%), than in the past (often over 30%); (4) Compared with employment, output shares are weak predictors of prosperity, and are under less pressure; and (5) Late developers’ manufacturing employment shares peak at much lower per capita incomes than previous studies have shown. We demonstrate that final result through analysis and simulation of the dynamics implied by our regression model. Becoming rich through industrialization has therefore become much more difficult. We argue that this is in large part because of rapid growth in the manufacturing capabilities of some very populous countries.

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