Drivers of deindustrialisation in internationally fragmented production structures

This paper provides detailed evidence on the extent of outsourcing and offshoring of manufacturing employment and value added using a regional subsystem input–output framework. The paper argues that direct employment and the value-added shares of manufacturing in the totals underestimate manufacturing’s importance. Jobs in manufacturing subsystems accounted for more than 25% of total worldwide employment, in contrast to just 15% recorded in direct statistics. In major developed countries, the level of intersectoral outsourcing reached its upper limit at the beginning of the new millennium. At the same time, the offshoring of activities interlinked with manufacturing has become the dominant driver of deindustrialisation in these countries. While direct manufacturing employment and intersectoral outsourcing declined between 2000 and 2014, offshoring experienced a significant increase of 6.5 percentage points, from 29% to 35.5% of the total employment generated under the G7 manufacturing subsystem. Furthermore, 84% of the value added that existed to meet the final demand for manufactured products in G7 countries remained in G7 countries, while most of the jobs needed to meet G7 final demand have been offshored to developing countries. The paper concludes that the importance of manufacturing subsystems for the world economy did not decline over 2000–14, but there was a significant shift of manufacturing activities and related services from G7 countries to China and other rapidly growing economies.