Padmini Ramesh retweetledi
I believe Dani Rodrik's manufacturing scepticism is misguided. In this post, I'll explain why.
Rodrik is increasingly endorsing a view that developing countries must look to high-value services, because, according to him, manufacturing-led development has become harder and less feasible.
I think he misreads the evidence. Manufacturing-led development has *always* been hard.
And, crucially, among major economies that have transformed their economies from poor to rich, all of them have done so via developing a strong manufacturing sector.
This continues to be the case. The two fastest-growing economies in the 21st century, China and Vietnam, have put manufacturing front and centre of their development strategies.
Why do countries need manufacturing to transform their economies from poor to rich? Here are three important reasons:
1. Manufacturing provides the material foundation for innovation. In fact, manufacturing is attributed to 53% of global R&D activity, far higher than services.
2. Manufacturing activities lend themselves more easily to mechanization and chemical processing. This, combined with the ease of spatially concentrating manufacturing production, enhances the potential of productivity growth through economies of scale.
3. Export of goods (dominated by manufactured goods) accounts for roughly 80% of all global exports. Exports allow countries to specialize, achieve scale, and become competitive, all of which accelerate productivity growth and technological development. A factory can produce for millions of global consumers; most services remain constrained by local demand.
This being said, we should not dismiss the growing importance of services for development. Together with Rohan Sandhu, Rodrik has done some important research on the development potential of some services. In particular, small countries can afford to take a service-led path — and have done so historically.
But advising countries to dismiss manufacturing-led strategies runs counter to what the evidence on economic development consistently shows.
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