Deindustrialisation, structural change and sustainable economic growth

This paper reviews the literature and empirical evidence on deindustrialisation, with a focus on premature deindustrialisation. Structural change and industrialisation have long been considered important for developing countries to 'catch up'. However, there has been widespread deindustrialisation over the past few decades, which is setting in at lower levels of income per capita and lower shares of manufacturing in the employment or GDP than earlier. Premature deindustrialisation can be defined as deindustrialisation that begins at a lower level of GDP per capita and/or at a lower level of manufacturing as a share of total employment and GDP, than is typically the case internationally. Many of the cases of premature deindustrialisation are in sub-Saharan Africa, in some instances taking the form of 'pre-industrialisation deindustrialisation'. It is argued here that premature deindustrialisation is likely to have especially negative effects on growth. In addition to being influenced by the level of income per capita and share of manufacturing in the economy when deindustrialisation begins, the effects of deindustrialisation on growth are also expected to depend on whether or not it is policy induced and the nature of the activities that are relatively contracting and expanding. The paper concludes by exploring the implications for policymakers facing deindustrialisation.

JEL Classification: L16, J21, O14, O25

Keywords: deindustrialisation, industrial development, structural change, industrial policy, manufacturing