Economic development and deindustrialization

Revision as of 18:26, 14 February 2011

Does Manufacturing Matter?

Measurement Issues and Interpretation

• There is a theory that labor productivity gains are faster in MFG than services which will result in the costs of manufacture falling faster relative to services and so the share of mfg employment will fall as companies do more with less.
• Measuring services is difficult because there is no output. Service for instance is qualitative.
• Can be due to changing income structure. As people become wealthier and greater proportion of income goes on services. Is Britain therefore a wealthier nation. Contrast with developing nations whose GDP will rise faster and be skewed towards manufacturing.
• Decline of mfg could also be just more activities subcintracted out to services and get reclassified as such. But evidence is mixed. It can work the other way when TV's replaced the service of movie theatres. It may also reflect uncompetitive manufacturing companies going out of business.

The trends

Only in the UK since 1960 has growth of mfg been less than services.

For Kaldor MFG acts as the engine of growth as it exhibits increasing returns whereas services only constant returns although this is disputed. But growing economies will tend to invest more and improve processes and products.

In the UK mfg controbuted 13.3% less in 1993 than it did in 1960 and 19% in employmemt. In Europe it was 9% and 7%.\

Causes of Deindustrialization

• Market imperfections- lack of supply side, unionization. Govt interference
• Chronic underinvestment and lack of industrial policy

The similarities and differences between the 2009 global economic recession and those in the 1980s and 1930s. Is deindustrialisation a positive or a worrying sign of weakness?

References

File:Ukbudget.pdf