An investigation into shapes and determinants of deindustrialization processes: Theory and evidence for developed and developing countries (1970–2017)

Abstract

This paper theoretically and empirically investigates deindustrialization in a group of selected countries, from 1970 to 2017, viewing it as a process of varied and complex causes, sensitive to the degree of economic development. Supported by the theoretical framework on the centrality of the manufacturing industry for economic growth and the contextualization of recent trends in global industry, we seek to understand empirically the main determinants of deindustrialization through an econometric model of panel data analysis. The main objective, which is also the main contribution of this research, is to empirically investigate the determinants of deindustrialization considering the degree of development of the countries and with the understanding that the causes of this process can differ substantially. Our main results, in general, were aligned with the theoretical and empirical literature on the topic, while corroborating the hypothesis that certain variables are dependent on the level of economic development. In less developed countries, the exchange rate (depreciation) is correlated positively with the value added of the manufacturing sector, as is trade openness but in a negative way. In advanced countries, on the other hand, the relocation of physical production and the degree of financialization are highlighted as factors that negatively affect the manufacturing value added, while trade openness is positive. In view of these results, a more critical analysis on the causes and costs of deindustrialization is considered important, especially in developing countries.