The Importance of Manufacturing in Economic Development: Has This Changed?

Manufacturing has traditionally played a key role in the economic development of developing countries. In recent years, it has been argued that the importance of manufacturing has diminished over the last 20–25years, resulting in premature deindustrialization or non-industrialization in developing countries. This study explores whether the low levels of industrialization in developing countries are attributable to long-term changes in opportunities available to the sector around the globe. The study’s findings show that the manufacturing sector’s value added and employment contribution to world GDP and employment, respectively, have not changed significantly since 1970. The declining manufacturing value added and manufacturing employment share in many developing countries has not been caused by changes in the sector’s development potential but has instead resulted from a shift of manufacturing activities to a relatively small number of populous countries, thus resulting in a concentration of manufacturing activities in specific developing countries. As was the case in the last millennium, industrialization has continued to play a key role in the growth of developing countries, which have sustained rapid and long-term growth for the last 25years. Achieving economic development by following the path of industrialization will likely remain important for low-income countries because they are able to take advantage of their backwardness relative to those countries which have already experienced rapid industrialization with a disproportionately large share of manufacturing activities, and could soon enter a mature stage of industrialization.