Deindustrialization And Its Effect On Dampening The Future Crisis – A Case Of European Union

In the European Union there is a long-term tendency of deindustrialization. This production gap was substituted with cheap goods from the overseas countries where salaries and working and environmental standards are much lower. A GDP gap was compensated with services sector. However, in this paper it was shown that, during recent Great economic crisis, the speed of recovery of the countries with stronger manufacturing was higher than in the countries with low manufacturing participation in GDP. An econometric model is built, showing how share of manufacturing in GDP of the countries of EU is negatively related to the length of recession in these countries: each 1% point rise in that share shortnes crisis by 0,27 quarters. The model also included a composite governance quality index: each index point rise is related to the 0,15 recession quarters shortening. Also, countries' economic ability to interveine, measured as a share of public debt in GDP, showed that each 1% point of public debt in GDP prolongues recession by 0,05 quarters. The analysis has also shown that, based on the initial conditions before the epidemics, the new risis would last 13,5% longer than The great crisis. These findings provide useful ground for studying deindustrialization processes and its negative effects on the automatic stabilization, which is of utter importance for the imminent crisis caused by COVID-19 disease