ACADEMIC ARTICLE

Authors: Antônio Carlos Diegues; Qiuyi Yang; José Eduardo Roselino; Marcos José Barbieri Ferreira and Renato Garcia

Full article: https://doi.org/10.1093/icc/dtaf065

This paper aims to analyze manufacturing’s contribution to development in high-income (HIC) and middle-income countries (MIC) from 2000 to 2019, revisiting the link between manufacturing and economic development by testing the inverted-U curve hypothesis (Rowthorn (1994); Palma (2005, Beyond Reforms: Structural Dynamics and Macroeconomic Vulnerability); Rodrik (2016, Journal of Economic Growth, 21, 1–33)) from an intra-manufacturing perspective. The original contribution of the analysis presented in this paper is to test the validity of this relationship for MIC and HIC by examining not the share of manufacturing in GDP (measured by value added), but the contribution of the manufacturing sector to development measured by the structural decomposition of productivity and wage growth. The paper’s main findings are: (i) the results do not indicate a decline in the contribution of manufacturing to development among middle- and high-income countries (MICs and HICs) as they attain higher levels of per capita income. In fact, across nearly all econometric specifications, no evidence of an inverted-U-shaped curve was observed between the manufacturing’s contribution to development and per capita income levels; (ii) in MIC, the empirical evidence reveals a broadly consistent pattern whereby rising per capita income is associated with an increasing contribution of manufacturing to development, whether measured in terms of productivity growth or wage growth, and (iii) For HIC, contrary to what can be inferred from the interpretations of normal or positive deindustrialization, no inverted-U curve is observed regarding the behavior of productivity. Regarding the wage variable, there is an almost generalized tendency for its contribution to development to decline as per capita income rises, except within the structural change component for high-technology sectors. Although counterintuitive, this pattern may reflect intensified international competition—mainly via global value chains—pushing down manufacturing costs in high-income economies. These findings challenge the notion of “natural” deindustrialization and highlight the persistent relevance of manufacturing, especially in technologically intensive sectors. They underscore the need for industrial and innovation policies tailored to sectoral heterogeneity and national contexts, particularly in light of digital and green transitions that are reshaping global production systems.