MacroScan - The Continuing Paradox of World Manufacturing Employment

IThe issue of the international relocation of manufacturing production is one which has received and continues to attract a great deal of attention from not just economists but policy makers, trade unions and other analysts across the world. There is a general sense that the past decade in particular has seen a significant shift in the structure of international manufacturing production, which is captured in the fact that developing countries now account for nearly a quarter of world manufacturing goods exports, up from just over one-tenth two decades ago.

Such relocation, which in turn is generally supposed to imply a net loss of manufacturing jobs in the North and a net expansion of such jobs in the South, has been seen as being driven by both by the movement of capital, as multinational companies in particular move to areas characterised by cheaper labour, and by trade liberalisation which has allowed manufactured goods produced in Southern locations to penetrate Northern markets. It is recognised that both of these processes have been greatly facilitated by technological change which has allowed for the locational breakup of the productive process and the separation of various elements of it with differing types of skill requirement. This has enabled as "the vertical disintegration of production", with the associated geographical separation of different parts of the production process and increase in intra-industry trade.

It is sometimes argued that this has been accompanied by a process in which manufacturing itself has become less important, both in world production and world trade, as various services activities play more significant roles. However, as Chart 1 shows, during the 1990s, manufacturing exports grew at reasonable rates throughout the 1990s for most important categories of goods, and for some, such as office and telecom equipment, export growth was very rapid indeed.
Chart 1 >>

Of course, within this, the shift in location of manufacturing production from developed to developing countries can be exaggerated. As Chart 2b indicates, even in 2000, certain developed countries dominated world trade in manufactured goods. Indeed, the United States, the European Union and Japan together still accounted for more than 60 per cent of manufactured exports in 2000. But what is evident is that the share of the major developed country exporters had come down even over the decade of the 1990s, continuing a process that had begun earlier and was clearly evident in the 1980s.

Thus, as is clear from a comparison of Charts 2a and 2b, the share of Germany in world manufacturing exports fell quite sharply from 16 per cent to 10 per cent over the decade, and most other major developed country exporters experienced declines in their shares of at least one percentage point or more. Only the United States increased its share, from 12 to 14 per cent, contrary to the widely held perception that it dominated world manufactured goods trade only by virtue of its huge capacity for manufactured imports. In contrast to this, countries like the Peop0le's Republic of China and Mexico managed to nearly triple their shares (albeit from relatively low bases) over this period.
Chart 2a >> Chart 2b >>