Premature deindustrialization: A cautionary note

Robert Rowthorn

Japanese Economy, 2024, vol. 50, issue 3-4, 264-275

Abstract: This paper presents a simple model of structural change in an isolated economy. As the economy industrialises the employment share of manufacturing increases. It eventually peaks and thereafter decreases. Simulations with this model indicate that faster growth in manufacturing productivity implies a lower and earlier peak in this sector’s employment share. The model is extended to include a late industrialiser that acquires technology from a more advanced leader. No matter when it occurs, the decline of manufacturing in this model is never premature. It is the outcome of technical dynamism in the manufacturing sector. The model can be extended to include external trade. Manufacturing then becomes vulnerable to the Dutch disease; whereby locally produced manufactures are replaced by imports. Such effects may occur at any stage of development. The theoretical discussion is followed by a brief examination of the South American experience that illustrates the effects of the Dutch disease. The paper concludes by examining the share of manufacturing in constant price GDP. On balance, the evidence supports Rodrik’s (2016) claim that this share is now on the decline in the advanced economies.

Date: 2024
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DOI: 10.1080/2329194X.2024.2397896

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