Premature deindustrialization: an empirical analysis in latecomer developing countries

Taguchi, Hiroyuki (2023): Premature deindustrialization: an empirical analysis in latecomer developing countries.

Abstract

This study examines whether latecomer developing countries worldwide have experienced premature deindustrialization. The main findings of this study are as follows. First, the fixed effect model based on panel data, as a baseline analysis for examining the manufacturing-income nexus using the latecomer index, identified the existence of premature deindustrialization in latecomer developing economies under globalization in the post-1990 period. Second, from a geographical perspective, the acceleration of premature deindustrialization was confirmed in Latin America and some areas of Africa. Third, the quantile regression, which served for checking the robustness of the fixed effect model estimation results, also supported the existence of premature deindustrialization in latecomer developing economies. Finally, alternative estimations demonstrated that partaking in global value chains (GVC) facilitated industrialization, whereas natural resource abundance prevented it. Regarding policy implications, GVC participation can be a viable policy for mitigating premature deindustrialization in latecomer developing economies; for resource-rich economies to prevent the Dutch disease effect from accelerating premature deindustrialization, their resource revenues could be mobilized to productive uses, like infrastructure development.

• Item Type: MPRA Paper
• Language: English
• Keywords: Premature deindustrialization, latecomer developing countries, fixed effect model, globalization, global value chains
• Subjects: F - International Economics > F1 - Trade > F10 - General; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O14 - Industrialization ; Manufacturing and Service Industries ; Choice of Technology

References

Buchinsky, M. (1998) “Recent Advances in Quantile Regression Models: A Practical Guideline for Empirical Research” The Journal of Human Resources 33, 88–126.

Caldentey, E.P. and M. Vernengo (2021) “Financialization, Premature Deindustrialization, and Instability in Latin America” Review of Keynesian Economics 9, 493–511.

Chang, C., J. Wen, M. Dong and Y. Hao (2018) “Does Government Ideology Affect Environmental Pollution? New Evidence from Instrumental Variable Quantile Regression Estimations” Energy Policy 113, 386–400.

Choi, I. (2001) “Unit Root Tests for Panel Data” Journal of International Money and Finance 20, 249–272.

Corden, W.M. and J.P. Neary (1982) “Booming Sector and De-industrialization in a Small Open Economy” Economic Journal 92, 825–848.

Coutinho, L. (2011) “The Resource Curse and Fiscal Policy” Cyprus Economic Policy Review 5, 43–70.

Dasgupta, S. and A. Singh (2007) “Manufacturing, Services, and Premature Deindustrialization in Developing Countries: A Kaldorian Analysis” In Advancing Development by G. Mavrotas and A. Shorrocks, Eds., Palgrave-Macmillan: New York, 435–454.

Daymard, A. (2020) “Agricultural Productivity as a Prerequisite of Industrialization: Some New Evidence on Trade Openness and Premature Deindustrialization” THEMA Working Papers, No. 2020-07.

Hamid, N. and M. Khan (2015) “Pakistan: A Case of Premature Deindustrialization?” The Lahore Journal of Economics 20, 107–141.

Im, K.S., M.H. Pesaran and Y. Shin (2003) “Testing for unit roots in heterogeneous panels” Journal of Econometrics 115, 53–74.

Kimura, F. (2006) “International Production and Distribution Networks in East Asia: Eighteen Facts, Mechanics, and Policy Implications” Asian Economic Policy Review 1, 326–344.

Kimura, F., Y. Takahashi and K. Hayakawa (2007) “Fragmentation and Parts and Components Trade: Comparison between East Asia and Europe” North American Journal of Economics and Finance 18, 23–40.

Koenker, R. and G.J. Bassett (1978) “Regression Quantiles” Econometrica 46, 33–50.

Lee, C. (2020) GVCs and Premature Deindustrialization in Malaysia, ISEAS Yusof Ishak Institute: Singapore.

Levin, A., C.F. Lin and C.S.J. Chu (2002) “Unit Root Tests in Panel Data: Asymptotic and Finite-sample Properties” Journal of Econometrics 108, 1–24.

Maddala, G.S. and S. Wu (1999) “A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test” Oxford Bulletin of Economics and Statistics 61, 631–652.

Nayyar, G., M. Cruz and L. Zhu (2021) “Does Premature Deindustrialization Matter? The Role of Manufacturing versus Services in Development” Journal of Globalization and Development 12, 63–102.

Rodrik, D. (2016) “Premature Deindustrialization” Journal of Economic Growth 21, 1–33.

Sachs, J.D. and A.M. Warner (2001) “The Curse of Natural Resources” European Economic Review 45, 827–838.

Sachs, J.D. (2007) “How to Handle the Macroeconomics of Oil Wealth” in Escaping the Resource Curse, M. Hamphreys, J.D. Sachs and J.E. Stiglitz, Eds., Columbia University Press: New York, 173–193.

Sato, H. and H. Kuwamori (2019) “A Note on Premature Deindustrialization” IDE Discussion Paper, No. 763, Institute of Developing Economies, Japan External Trade Organization (IDE-JETRO).

Ssozi, J. and E. Howard (2018) “The Non-Classical Structural Economic Transformation of Sub-Saharan Africa: Urbanization with Premature Deindustrialization” Africa Growth Agenda Journal 15, 8–12.

Sung, Y.-W. (2007) “Made in China: From World Sweatshop to a Global Manufacturing Center?” Asian Economic Papers 6, 43–72.

Taglioni, D. and D. Winkler (2016) Making Global Value Chains Work for Development, World Bank: Washington, DC.

Taguchi, H. and Y. Tsukada (2022) “Premature Deindustrialization Risk in Asian Latecomer Developing Economies” Asian Economic Papers 21, 61–77.

United Nations Conference on Trade and Development (2013) World Investment Report 2013 – Global Value Chains: Investment and Trade for Development, United Nations Conference on Trade and Development: Geneva.

World Bank (2020) World Development Report 2020: Trading for Development in the Age of Global Value Chains, World Bank: Washington DC.