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Manufacturing as the Key Engine of Economic Growth for Middle-Income Economies
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Manufacturing as the Key Engine of Economic Growth for Middle-Income Economies

Dan Su and Yang Yao
ADB Institute, 2016
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7

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Many poor countries become richer by focusing on manufacturing. However, as wages rise, the ability to compete solely on cost becomes harder, and global manufacturers tend to move factories to cheaper countries. The “middle-income trap,” in which a nation’s growth stalls, has plagued all but a handful of countries that have pursued industrialization as a route to growth. Should countries fight to keep manufacturing jobs or switch to promoting their service sectors? New evidence from academics Dan Su and Yang Yao of Peking University suggests that manufacturing is still crucial to economic development. getAbstract recommends their thoughtful argument to economists and policy makers.

Take-Aways

  • In developing countries, policy makers have historically preferred to promote manufacturing, but a second route to growth – through services – seems possible.
  • For middle-income countries, the main driver of productivity is the importation of technology, especially for manufacturing, from more developed countries.
  • Higher manufacturing growth empirically correlates to higher service-sector growth and greater private savings.

About the Authors

Dan Su is a researcher at the National School of Development, Peking University, where Yang Yao is the dean.

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