The shifting balance between manufacturing and service industries in developed economies has significant implications for long-term growth and international trade. This column uses Japanese firm-level data to analyse the impact of ‘factoryless goods producers’ on overall productivity. As these producers specialise in tasks in which advanced economies have a comparative advantage, it is anticipated that when combined with falling production costs and trade liberalisation, they will contribute to economic growth.
Masayuki Morikawa, 23 June 2016
Andrew B. Bernard, Valerie Smeets, Frederic Warzynski, 22 June 2016
Deindustrialisation is a major policy concern in high-income countries not only because of resulting unemployment, but also because of the long-run implications for growth. This column uses evidence from Denmark to analyse whether it is being measured in the right way. A substantial fraction of the decline in manufacturing actually reflects the changing nature of production. Service sector firms that still perform many of the value-adding activities of traditional manufacturing firms should not be overlooked by policymakers.
Brian Varian, 29 May 2016
Modern discussions about a country’s ‘decline in manufacturing’ are seldom meaningful. Such talk of industrialisation and deindustrialisation across the entire sector tends to ignore important variation across individual industries. This column draws lessons from the revealed comparative advantage of late-Victorian Britain – the ‘workshop of the world’. Advantage lay mainly in industries that were relatively capital-intensive and that didn’t rely on large pools of unskilled labour. Despite its resource wealth, even Britain in the first era of globalisation was at a measurable comparative disadvantage in a number of industries.
Wolfgang Dauth, Sebastian Findeisen, Jens Südekum, 21 February 2016
A common theme of recent trade theory models is that globalisation-related shocks induce worker sorting across industries, labour markets, and plants. However, there is little empirical evidence of shocks causing such endogenous mobility responses. This column explores how rising international trade exposure affected the job biographies and earnings profiles of German manufacturing workers since the fall of the Berlin Wall. Individuals are found to systematically adjust to globalisation, with a notable asymmetry in the individual labour market responses to positive and negative shocks. Critically, the push effects out of import-competing manufacturing industries are not mirrored by comparable pull effects into export-oriented branches.
Paul Bergin, Giancarlo Corsetti, 11 January 2016
Competitive devaluation is a long-standing idea in international macroeconomic theory. This column takes a step back from the current debate and assesses a different perspective on monetary and exchange rate policies. Strategic behaviour is shown to be detrimental from a global welfare perspective. Due to negative spillovers elsewhere, devaluations invite retaliation – which in turn reduces manufacturing at the global level. Monetary policy can provide a non-negligible contribution to fostering comparative advantage in high-value branded manufacturing goods by pursuing efficient macroeconomic stabilisation.
Hunt Allcott, Allan Collard-Wexler, Stephen D. O'Connell, 03 December 2015
In many countries, electricity supply is cited as a primary impediment to firm growth and productivity. This column assesses the effect of endemic electricity shortages on Indian manufacturers. The average reported level of shortages reduces annual plant revenues and producer surplus of the average plant by 5-10%. While the complete elimination of shortages may not be plausible in the near term, simulations show that interruptible retail electricity contracts could substantially reduce the impact of shortages on manufacturers.
Ejaz Ghani, Arti Grover Goswami, William Kerr, 18 November 2015
Urbanisation in India is taking many twists and turns. Organised manufacturing is moving out of urban areas, while unorganised manufacturing is transitioning towards urban areas. As the fourth greatest energy consumer in the world, how the country manages this ongoing industrialisation and urbanisation process will have important environmental implications. This column looks at the relationship between growth, geography, and energy efficiency in manufacturing in India. Electricity consumption per unit of output has declined in urban and rural areas, but these overall trends mask substantial variation between states and substantial potential for further efficiency improvements in energy-intensive industries.
Jayant Menon, Thiam Hee Ng, 01 October 2015
Malaysia’s fortunes have taken a turn for the worse in recent years, both in manufacturing and across the economy in general. This column argues that the country is moving back to processing its agricultural and mineral resources, and that such ‘premature deindustrialisation’ is mostly policy driven. The biggest concern with such structural shifts is that they lead to low-productivity, low-wage manufacturing. Malaysia must address these issues and improve its business environment if it wants to realise its aspirations.
Toshihiro Okubo, Yukako Ono, Yukiko Umeno Saito, 04 September 2015
The productivity of a firm depends on its interaction with its suppliers and customers. This column uses unique data from Japan to investigate the wholesalers’ role in transaction networks, considering both sides of the transaction. The likelihood that a firm uses wholesalers increases with smaller buyer-side firms and larger seller-side firms. In addition, wholesalers tend to be located closer to their manufacturing buyers and further from their manufacturing sellers than manufacturers are to their direct manufacturing partners.
Nicholas Crafts, Alex Klein, 30 July 2015
There is increasing evidence that cities offer externalities that raise labour productivity. This column looks at the contribution of US cities to productivity growth at the turn of last century. The findings show that increased specialisation, promoted by improved transportation, was the key to productivity growth. Today’s policymakers should heed this lesson.
Johan Hombert, Adrien Matray, 11 July 2015
The rise of China has been identified as a major source of disruption for the manufacturing sector in high-income economies. This column argues that innovation helps firms to escape import competition from low-wage countries. It uses variation in R&D tax credits across years and US states to show that firms' R&D capital stock has a causal effect on their resilience to trade shocks.
Petr Matous, Yasuyuki Todo, 16 June 2015
Japanese business groups, or keiretsu – cartels of companies with interlocking interests – have contributed much to the success of Japanese manufacturing in the 20th century. This column explores the future of this form of corporate governance, amid increasing calls for their dissolution. An examination of trade networks in the automotive industry shows that automakers no longer exhibit a preference for dealing with keiretsu partners. Globalisation, procurement scandals, and advances in modularisation have helped to erode the benefits of these long-term relationships.
Ejaz Ghani, William Kerr, Alex Segura, 09 June 2015
The vast informal sector in India affects everything from poverty to growth. This column presents new facts on how Indian job growth in manufacturing is concentrated in informal tradable industries, especially one-person establishments. These features are most closely linked to the urbanisation of informal Indian manufacturing, but subcontracting and rising female participation also appear to play noteworthy roles.
Catherine Hausman, Ryan Kellogg, 15 May 2015
The economic and environmental impacts of the US fracking boom are hotly debated. This column argues that there’s been a large positive impact on the US economy, estimating that the benefits to producers and consumers totalled $48 billion in 2013, or around one-third of 1% of US GDP. The climate change impacts have been large, but they do not outweigh the private gains. However, a lack of data on the impacts to water, air, and seismic activity hamper policymakers effectively targeting the areas of greatest concern and hamper them drawing up effective regulation.
Uri Dadush, 13 March 2015
Manufacturing is often seen as the key to sustainable export and productivity growth in developing countries. This column argues that, while manufacturing played a key role in some countries’ development, high growth can be sustained without relying primarily on manufacturing. A process of learning, productivity improvement, and investment that touches all sectors characterises the most successful economies. Policies that artificially favour manufacturing should instead give way to maximising learning from the frontier in all sectors of the economy.
Samuel Marden, 28 December 2014
It is often argued that for poor countries, increases in agricultural productivity result in higher non-agricultural output, but the theory is ambiguous and the empirical evidence is limited. This column presents evidence from a natural experiment provided by China’s early 1980s agricultural reforms. Higher agricultural output induced by the reforms led to quantitatively important growth in non-agricultural output. This growth appears to be primarily due to rural savings increasing the supply of capital to the non-agricultural sector.
Kozo Kiyota, 27 November 2014
A major concern with multinationals is that they can cause disemployment (also called job offshoring). However, FDI could offset or even exceed such a negative effect. This column examines to what extent disemployment in Japan is related to FDI. The results suggest that disemployment in Japan is driven by substitution between capital and labour, rather than the reallocation of labour caused by FDI.
Daron Acemoglu, David Autor, David Dorn, Gordon H. Hanson, Brendan Price, 28 September 2014
Manufacturing in the US has rebounded after the Great Recession, but employment levels have not recovered from their steep decline in the decade before the recession. This column examines to what extent the sector’s fall is a result of the rise of China. The authors estimate direct effects of import competition from China, as well as labour market and buyer-seller indirect effects that operate at the local level. China’s impact has been strong, and employment in US manufacturing is unlikely to recover.
Giuseppe Berlingieri, 25 September 2014
Advanced nations are shedding manufacturing jobs and gaining service jobs – a trend that has been in place for decades. Some of the shift, however, is a reclassification effect. Corporate outsourcing of tasks like marketing means workers doing the same task as before now show up as working for a firm in the service sector. Using US data from the past 60 years, this column shows that the evolution of the input-output structure – which is mostly due to professional and business services outsourcing – accounts for 36% of the increase in services and 25% of the fall in manufacturing.
Arik Levinson, 24 September 2014
Pollution emitted by manufacturers has been falling in Europe and the US. A concern with this clean-up is that developed countries have been offshoring the production of pollution-intensive parts and products. This column presents evidence refuting this concern. Using a new approach, the author calculates that almost all of the clean-up in US manufacturing can be explained by technological changes.