The ‘Why’ of Manufacturing
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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