Abstract
The scope of this paper is to propose a novel approach to the categorization of manufacturing development, aimed at accounting for the major global transformations that have occurred in the organisation of industrial activity in the last decades. It first addresses the way manufacturing development can be defined in order to provide a measure of the degree of industrialization of different countries, and then suggests a new taxonomy accordingly. Attention is paid to the fact that in the course of time countries can—and usually do—move from one group of manufacturers to another. Moreover, it is shown that cross-country differences in the degree of industrialisation are also mirrored by differences in their institutional features. Results offer some important lessons for industrial policy.
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Notes
- 1.
This framework has set apart for many years, as a separate group, the ensemble of the East European countries, which were indeed characterised by a quite strong role of the industrial sector in the economy but were nevertheless classified outside the boundaries of the industrialised world.
- 2.
For a wider treatment of the subject see Traù (2016).
- 3.
The phenomenon, including India and other Asian underdeveloped economies, has been termed by Freeman (2007) as ‘great doubling’.
- 4.
- 5.
- 6.
This was very much enhanced by the lifting of barriers to commercial integration following the new globalisation paradigm.
- 7.
According to Amsden (2001), the ‘Rest’ includes China, India, Indonesia, Korea, Malaysia, Taiwan and Thailand in Asia; Argentina, Brazil, Chile and Mexico in Latin America, and Turkey in the Middle East. The development of these countries, that Amsden (see in particular Chaps. 4 and 5) illustrates through the review of a massive series of analyses relating to them individually, takes on a different profile depending on the way in which the economies lagging behind acquired manufacturing knowledge (and, in particular, depending on the presence or absence of a prior colonial experience).
- 8.
As to Germany, this has been claimed to involve a strong change in the organisation of manufacturing activity even within the country itself, in terms of the emerging of what has been called the German ‘Bazaar economy’ (Sinn 2006).
- 9.
Russia represents a spectacular example of the destructive consequences of an ideological application of the Washington Consensus rules, involving the simultaneous implementation of policies on price liberalization, accelerated privatization, tax provisions and commercial opening—without building up market institutions beforehand. The most evident counter-example is the maintaining of public property and control over domestic financial flows and capital movements in China, and in general the set of strategies pursued by the East-Asian economies (Lin 2009).
- 10.
From this point of view a different way has been followed by Mexico, as far as it succeeded in becoming part of the North-American supply chain.
- 11.
The displacement can take the form of competition in trade—both direct (export vs. import) and indirect (on third markets)—as well as that of a diversion of the FDI flows coming from the ‘North’ from weaker emerging areas to stronger ones.
- 12.
It is worth stressing that this sorts of vertical fragmentation relates to a different issue with respect to the horizontal fragmentation (sub specie of intra-trade) that had long characterised the trade relations among industrialised countries, mainly—albeit not exclusively—relating to final goods (Greenaway and Milner 1986).
- 13.
According to Singh “an efficient manufacturing sector in an open market context can be defined as one which (currently as well as potentially) not only satisfies the demand of consumers at home, but is also able to sell enough of its products abroad to pay for the nation’s input requirements. This is, however, subject to the important restriction in that [...] [it] must be able to achieve these objectives at socially acceptable levels of output, employment, and the exchange rate” (1977, p. 128, emphasis original).
- 14.
“The literature is replete with competing terminologies; examples include poor/rich, backward/advanced, underdeveloped/developed, North/South, late comers/pioneers, Third World/First World, and developing/industrialized” (Nielsen 2011, p. 99).
- 15.
The other economic institutions (IMF, World Bank, WTO and the like) that are in charge of ranking individual countries according to their level of development, for operational as well as analytical purposes, shape their definitions on the basis of the characteristics that matter for their specific institutional role (Nielsen 2011). Hence, the IMF pays attention to the developing of financial markets, the United Nations Development Programme to the country’s achievements in terms of longevity and education, and so on. For all institutions, anyway, the basic measure to refer to is generally per-capita income. Basically, this means that country grouping boils down to identifying the critical (absolute or relative) thresholds of per-capita income according to which the whole population of countries can be divided, taking into account in some ways also some other variables.
- 16.
For instance, the group of ‘Emerging industrial economies’ is identified according to three alternative rules: a level of PPP-adjusted manufacturing value added per capita between 1000 and 2500 US$; a level of PPP-adjusted GDP per capita greater than 10,000 US$; a share in world manufacturing value added greater than 0.5%.
- 17.
It is important to stress that this has not to be intended as a mechanical sequence of stages, but simply as the logic to be followed by countries in the course of their development process. The literature on stages of growth has been developed with reference to both economic systems (as in Rostow’s (1960) analysis) and firms (mostly in management theory, see McMahon (1998) for all). The approach followed in this paper differs from such a way of interpreting the development process in that it challenges the idea of a unique pattern of development to be applied to all countries, in light of the thought of Gerschenkron (1962), Fuà (1978), Piore and Sabel (1984), Amsden (2001). It may be argued, for example, that laggards must come to terms with global markets that are already structured, and market shares that are already in the hands of incumbents, so that they have to rely upon different strategies with respect to first comers. Or that industrialisation may take place in quite different forms as to the organisation of production activity (hierarchies vs markets), and so on. Even more, as will be clear in the following, in this view countries can move along the development path (passing from one group to another) in both directions—i.e. no achievement can be taken for granted indefinitely.
- 18.
Inter-alia, this indicator is referred to in order to measure the degree of attainment of one of the 17 sustainable development goals launched by the United Nations (UNCTAD 2016).
- 19.
See Appendix 1 for details.
- 20.
Cluster analysis allows to assign each observation to a specific group on the basis on a multidimensional measure of similarity of their production systems. Two recent applications of cluster analysis to the study of economic development can be found in Zhang and Gao (2015) and Tezanos Vázquez and Sumner (2013). To the best of the knowledge of the authors of this paper, the cluster analysis presented in this work is the first attempt to apply it to the study of industrial development.
- 21.
This choice is consistent with the existing taxonomy proposed by UNIDO (Upadhyaya 2013), while it is in contrast with the logic underlying the construction of the UNIDO Competitive Industrial Performance (CIP) index (see UNIDO various years), which assigns to the manufacturing value added per capita the same weight as to other seven structural indicators.
- 22.
In particular, Pakistan, India, and Vietnam, with the lowest levels of manufacturing valued added per capita, in the sample, have been identified by the clustering algorithm to form a separated group of manufacturers. The rationale for choosing the group in which to include these countries is provided in the next subsection.
- 23.
The fourth Asian Tiger, Hong Kong, has been excluded because its development represents a unique case, after China’s annexation in 1997.
- 24.
The cross-cluster analysis that follows is not driven by the presence of outliers, as similar conclusions can be drawn by comparing median instead of the mean values for each variable in the different groups.
- 25.
As for the 2015 taxonomy, also in this case there is an unambiguous relation between the sequence of different tiers and the level of manufacturing value added per capita. Moreover, also in this case, a further (sixth) cluster including the three least developed manufacturing countries (Pakistan, India, and Vietnam) has been isolated by the hierarchical clustering algorithm. Just as for 2015, this group has then been merged with the adjacent one.
- 26.
See, for instance, Mazzucato (2011) with reference to public policies oriented towards technological innovation.
- 27.
To download the database and read related documentation: www.cepii.fr/institutions/EN/ipd.asp
- 28.
See Appendix 2 for the list of indicators.
- 29.
See Kaufmann et al. (2010) for details.
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Appendices
Appendix 1 World shares of manufacturing countries in the sample (2005, nominal $)
Appendix 2 List of selected institutional indicators
Functioning of public administrations | Free operation of markets | Security of transactions and contracts |
|---|---|---|
Transparency of economic policy | Significance of public companies to the economy | Security of private contracts |
Efficiency of the tax administration | Accounts of State-owned and partly State-owned firms | Trade justice |
Transparency in public procurement | Weight of State-owned banks | Insolvency law |
Functioning of the justice system | Labour market rigidity | Termination of contracts by the State |
Influence of economic stakeholders | Mobility of workers | Respect for intellectual property |
Freedom to establish organisations | Pricing control | Employment contract protection |
Ease of starting a business | ||
Quality of the public policy making process | ||
Support for emerging dynamic sectors | ||
Consideration of the public interest in State-business relation | ||
Political authorities decision-making autonomy | ||
Quality of public services (provided by the public sector) | ||
Market regulations | Openness | Coordination of stakeholders, strategic vision, innovation |
Competition: barriers to market entry | Trade liberalisation | Capacity for State reform |
Importance of large-scale distribution | Obstacles to trade liberalisation | Capacity for sectoral reform |
Competition regulation | Obstacles to financial liberalisation | Tax exemptions |
Scale of public ownership | Importance of joint ventures in the economy | Public-private cooperation |
Information on the capital held by firms | Opening up of the financial system | Coordination in the public sphere |
Long-term vision | ||
Long-term sectoral strategies | ||
Spaces for reflection on the major national issues | ||
Priority of the elite in relation to development and growth | ||
Technological environment of firms | ||
PubEc support for innovation | ||
Venture capital | ||
Adaptation of the training supply to business needs | ||
Adaptation of the higher education system to business needs |
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Romano, L., Traù, F. (2020). Towards a New Taxonomy of Manufacturing Countries. In: Paganetto, L. (eds) Capitalism, Global Change and Sustainable Development. Springer Proceedings in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-030-46143-0_12
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