July 23, 2021 - 3:30 pm
July 23, 2021 - 5:00 pm
Topic: ‘Trapped in the Middle’? Growth and Premature De-industrialisation in Emerging Economies
In this the paper we examine the tendency towards ‘premature de-industrialisation’ and its possibility of hindering the channels of economic growth in middle-income emerging economies. We arrive at a set of five conditions to identify ‘premature de-industrialisation’ phases. The first and second are to ascertain the de-industrialisation phase in terms of employment and value-added share of the manufacturing sector. To capture the ‘premature’ element in de-industrialisation, we define upper threshold levels in terms of income per capita, employment, and value-added share of the manufacturing sector in the other three conditions. Further, we identify the set of economies facing ‘middle-income trap’ by distinguishing growth-slowdown episodes. The empirical analysis is based on a sample of 54 economies for the 25 years period, 1992 to 2017. The empirical results using panel probit and IV-probit estimation, indicates that the incidence of premature deindustrialisation increases the likelihood of experiencing ‘middle-income trap’. The study also finds evidence that increase in the employment share of high-productive service activities (finance, insurance, and professional services) can reduce the probability of getting trapped in the middle-income. In contrast, rise in the employment share of market services (relatively low-productive service activities) might stall the growth enhancement process through structural transformation. Our evidence emphasizes that, for developing economies, reversing the early de-industrialisation trend is critical for breaking out of the middle-income trap.