Foreign Direct Investment and De‐industrialisation

Abstract

The purpose of this study is to discuss the various issues regarding de‐industrialisation and to systematically analyse the causes of this phenomenon. In addition, the effect of the recent increase in foreign direct investment on de‐industrialisation will be analysed. Unlike extant studies, this study employs a more reliable method of estimation, known as the generalised method of moments system, for establishing the importance of foreign direct investment (FDI) with regard to de‐industrialisation. For a general assessment of the different factors of de‐industrialisation, including FDI, this study classifies the causes of de‐industrialisation in OECD countries into external and internal factors. As a result, the analysis has proved that not only internal and external factors are major factors of de‐industrialisation, FDI inflow and outflow are also major factors.

Diaspora Remittance Inflow, Financial Development and the Industrialisation of Africa

“…This measure captures the productive manufacturing units that are classified according to the kind of principal economic activity, which include works that are performed by power-driven machinery or manually, factory based work or in a household (United Nations, 1990). Also, this measure of industrialisation is favoured by Kang and Lee (2011), UNIDO (2013) and Gui-Diby and Renard (2015).…”

The Economic Forces Behind Deindustrialization: An Empirical Investigation

“…Providing strong micro-foundations for the use of non-homothetic preferences, Foellmi and Zweimüller (2008) thus developed a multi-sector growth model -in which new goods are continuously introduced into an original hierarchical utility function -which shows ability to reproduce the hump-shaped relationship between the manufacturing share of total employment and income, a trajectory observed in the data and confirmed by empirical research (see e.g. Rowthorn and Wells 1987;Krugman and Lawrence 1993;Ramaswamy 1997, 1999;Alderson 1999;Coutts 2004, 2013;Kollmeyer, 2009;Kang and Lee, 2011;Rodrik, 2015). …”

“…The technological or supply-side argument, which links the process of deindustrialization with rapid productivity growth in the manufacturing sector, has been largely supported by empirical studies (see e.g. Kravis et al, 1983;Wolff 1985, 1989;Rowthorn and Wells 1987;Lawrence, 1991;Krugman and Lawrence 1993;Ramaswamy 1997, 1999;Coutts, 2004, 2013;Pissarides, 2004, 2007;Nickell et al, 2008;Kollmeyer, 2009;Kang and Lee, 2011;Tregenna, , 2015Cruz, 2015) 21 . While figure 5 confirms that the fall in the manufacturing share of national employment has occurred along with faster labor productivity growth in manufacturing n virtually all selected countries, it is not clear whether larger productivity growth differential between manufacturing and services has led to more deindustrialization in cross-section of countries.…”

“…Ramaswamy, 1997, 1999;Alderson, 1997Alderson, , 1999Gaston, 1998;Rowthorn and Coutts, 2004;Brady and Denniston, 2006;Kollmeyer, 2009;Kang and Lee, 2011;Rowthorn and Coutts, 2013). While these studies find a significant negative effect of globalization on relative manufacturing employment, they largely suggest that internal factors were quantitatively more important in accounting for deindustrialization.…”

“…This is partly because most previous empirical research on deindustrialization (see e.g. Wood, 1994Wood, , 1995Saeger, 1997;Ramaswamy, 1997, 1999;Alderson, 1997Alderson, , 1999Kucera and Milberg, 2003;Rowthorn and Coutts, 2004;Whitford, 2005;Brady and Denniston, 2006;Kollmeyer, 2009;Kang and Lee, 2011;Coutts, 2004, 2013;Rodrik, 2015) has either ignored one or more of the explanations of deindustrialization altogether or has simply failed to test all of them simultaneously. In addition to this potential omitted variable bias, which has already been stressed by Kollmeyer (2009), we argue that the common measure of trade as a factor likely to account for deindustrialization in previous studies is inaccurate and may lead to misleading results.…”