Manufacturing, Services and Premature Deindustrialization in Developing Countries: A Kaldorian Analysis

Abstract

It is entirely befitting that this brief piece of Kaldorian empirics should be included in a volume dedicated to the memory of Lal Jayawardena. Lal regarded Nicholas Kaldor as his mentor and both shared an abiding interest in issues of economic policy. Kaldor was renowned as an apostle of industrialization. For both rich and poor countries alike, he regarded manufacturing as the engine of growth.¹ This chapter examines this central Kaldorian theme in relation to the recent experience of today’s leading developing countries. In a number of these countries, certain longterm structural tendencies have become manifest, prima facie challenging Kaldor’s theses. These tendencies, which will be documented more fully in subsequent sections, are as follows:

• Evidence of deindustrialization (the fall in the share of manufacturing employment or an absolute fall in such employment) in several developing countries at a much lower level of per capita income than observed historically in today’s advanced countries during their period of industrialization.

• The related phenomenon of ‘jobless growth’ in the formal manufacturing sector both in slow-growing economies (as in Latin America) as well as more surprisingly in fast-growing economies (for instance, India).

• Evidence that manufacturing may no longer be as steadfast an engine of growth as has been the case in the past. Contrary to widespread past experience, in the last decade or so services have often grown at a faster long-term rate than manufacturing, as for example in India.