Premature Deindustrialization, India and South Africa

 Dani Rodrik introduced the concept of Premature deindustrailisation. (https://drodrik.scholar.harvard.edu/files/dani-rodrik/files/premature_deindustrialization.pdf)

The term deindustrialization is used today to refer to the experience mainly of these advanced economies.In the United States manufacturing industries’ share of total employment has steadily fallen since the 1950s, coming down from around a quarter of the workforce to less than a tenth today.In Great Britain, at the other end of the spectrum, deindustrialization has been both more rapid and thorough. Manufacturing’s share of employment has fallen from a third in the 1970s to slightly above 10 % today, while real MVA (at 2005 prices) has declined from around a quarter of GDP to less than 15 %. Developing countries are turning into service economies without having gone through a proper experience of industrialization and this is called  “premature deindustrialization". Developed countries face unemployment deindustrialization without output deindustrialization.As developing countries opened up to trade, their manufacturing sectors were hit . Those without a strong comparative advantage in manufacturing became net importers of manufacturing, reversing a long process of import‐substitution.

Premature Deindustrialisation in India was studied by Sudip Chaudhuri. (Sudip Chaudhuri. Premature Deindustrialization in India and Re thinking the Role of Government. FMSH-WP-2015-91. 2015.)  In India , the share of manufacturing in GDP has stagnated around 15-16% since 1991. The share of manufacturing in GDP is 31% in Korea and 30% in China. Even Germany with much higher wage costs has a share of 21%. If domestic manufacturers are unable to withstand international competition and if domestic users start relying on imports, then what follows is not better utilization of existing capacities and greater efficiency but under utilization of existing capacities, decrease in production and rise in unemployment. Decay of existing industries which are unable to survive without protection does not automatically lead to the creation of new capacities in new industries.

Is sub-Saharan Africa deindustrializing is paper by Emmanuel B. Mensah (UNU MERIT working paper #2020-045. Important finding- East Africa is industrializing, whereas Southern Africa is the only region that seems to be deindustrializing.imports from both the North and South have negative effect on relative manufacturing employment suggesting that the competition effect is stronger than the spillover effect in the context of Africa. African countries can offset the negative effect through competition policies such as subsidies and local content laws that have minimum requirements for the procurement of locals and services, local employment opportunities, technology, and skill transfer, etc. Finally, as the results of the drivers show, promoting manufacturing exports is important for the industrial development of the continent.