Industrialization, employment and poverty

Alejandro Lavopa & Adam Szirmai

#2012-081

During the post-war period, there was consensus among development theorists that industrialization constituted the prime avenue for economic development. Manufacturing was identified as the main engine of economic growth, economic development and social progress. In recent years, however, the role of manufacturing has been challenged and questions have been raised concerning the continued importance of manufacturing for economic development, catch up and poverty reduction in developing countries. Some observers even argue that we live in an era of service-led growth

This report assesses the extent to which these challenges are justified, focusing on the role played by manufacturing with regard to the different dimensions of economic development: growth, employment creation and poverty reduction. The main question addressed in this report is whether or not manufacturing plays an important role in the process of economic growth, the creation of new employment and the alleviation of poverty in the least developed economies and in emerging middle-income countries. This report argues that manufacturing continues to be of considerable importance for economic development, employment creation and the reduction of poverty. Manufacturing is not the only sector of importance in developing countries of the present period. But the relative neglect of industrialization and industrial investment in modern policy debates is not justified. It is a sector which deserves special attention from policy makers and the financial community.

Keywords: industrialization, manufacturing, employment creation, poverty reduction

JEL classification: 014, J21, I 32