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The ‘Why’ of Manufacturing

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How Nations Succeed: Manufacturing, Trade, Industrial Policy, and Economic Development

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Abstract

This chapter sets out to answer some basic questions on manufacturing: Is manufacturing of any use? Is manufacturing a poor man’s business? Who manufactures and exports? Why is the share of manufacturing in total gross domestic product (GDP) diminishing globally? Which countries exports globally? Does manufacturing always make money? Which countries are (more) industrialized?

It looks at important aspects of manufacturing: its relationship with economic growth and its backward linkages. It also explains the importance of the concept of ‘the smile curve’ as it applies to manufacturing and industrial policy. Manufactured goods constitute an absolute majority of the world trade; remaining traded goods are mainly in agriculture and energy. Rich countries constitute the main exporters in the world and their exports mostly comprise manufactured goods. Manufacturing is the hotbed of productivity increases and most innovations are in the manufacturing sector. As a result of this, the share of manufacturing in total output (GDP) and in total employment is bound to decline, probably to less than 10% in the long run. The discussion forms a basis for why industrial policy is necessary especially in developing countries.

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Notes

  1. 1.

    The table does not include very small countries such as Monaco, Lichtenstein, Iceland, and Nauru and highly resource-based countries such as Qatar, which show high per capita manufacturing output due to the existence of few number of dominating manufacturing industries such as oil refining.

  2. 2.

    Thirlwall (1983).

  3. 3.

    Arisoy (2013), Atesoglu (1993), Bautista (2003), Bairam (1991), Bernat (1996), Felipe (1998), Guo et al. (2012), Fingleton and McCombie (1998), Hansen and Zhang (1996), Harris and Lau (1998), Leon-Ledesma (2000), Metcalfe and Hall (1983), Necmi (1999), Pons-Novell and Viladecans-Marsal (1999), Rayment (1981), Szirmai et al. (2013), Szirmai (2012), Thirlwall (2015), Celebi and Ozdeser (2016), Andreosso-O’Callaghan, B., & Lenihan, H. (2011), Paci & Pigliaru (1999), Beheshti & Sadighnia (2006), Drakopoulos & Theodossiou (1991), Vaciago (1975), Szirmai, A. (2013).

  4. 4.

    In the services, productivity growth remains relatively low; unless robots do the restaurant serving or haircuts, employment in services and thus wages do not fall, while in manufacturing rising productivity means less worker hours are necessary to increase the output, let alone keeping the production level unchanged.

  5. 5.

    See, for example, Pons-Novell and Viladecans-Marsal (1999).

  6. 6.

    Inomata (2013).

  7. 7.

    Manufacturing Institute (undated).

  8. 8.

    UNDP (2014).

  9. 9.

    Malthus (1798: vii).

  10. 10.

    British Fashion Council (2010); Yülek et al. (2015).

  11. 11.

    See, for example, Guo et al. (2013).

  12. 12.

    See, for example, Shin et al. (2012).

  13. 13.

    Macdailynews (2014).

  14. 14.

    Elmer-DeWitt (2013).

  15. 15.

    Yülek et al. (2015).

  16. 16.

    Yülek et al. (2015).

  17. 17.

    Bellis (2017).

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  1. Istanbul Commerce University , Istanbul, Turkey

    Murat A. Yülek

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Yülek, M.A. (2018). The ‘Why’ of Manufacturing. In: How Nations Succeed: Manufacturing, Trade, Industrial Policy, and Economic Development. Palgrave Macmillan, Singapore. https://doi.org/10.1007/978-981-13-0568-9_5

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  • DOI: https://doi.org/10.1007/978-981-13-0568-9_5

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