Patterns of Industrialization and effects of country-specific conditions IPD/JICA Task Force on Industrial Policy and Transformation Jordan, June 5-6, 2014 Nobuya Haraguchi

Motivations To understand the process of industrial development To identify development patterns and structural change To find out the way in which country-specific conditions affect country’s industrial development

Studying development characteristics of manufacturing industries Not only the patterns but also the development characteristics of manufacturing industries – Use of real value added per capita – Analysis on output (value added), employment and labor productivity together – Their changes as countries develop – Changes over time (time effects)

Patterns of Manufacturing Development and Shift of Comparative Advantage

Manufacturing development patterns

Model RVA – real value added per capita EMP – employment-population ratio LP – labour productivity RGDP – real GDP per capita (in constant PPP 2005) RGDP 2 – real GDP per capita square, RGDP 3 – real GDP per capita cubic α c – country fixed effect e – unexplained residual i – manufacturing industry (ISIC 2 digit level - 18 industries) Unbalanced panel data Time series from 1963 – 2010; countries depending on the industry Model applied to large (with population more than 12.5 million) and small country groups separately In addition, we assessed the effects of population density, natural resource endowment and time periods on industrial development.

Non-parametric approach for estimation

Source: UNIDO estimate based on UNIDO INDSTAT2 Estimated pattern with actual country observations

95% confidence intervals (after anti-log) Source: UNIDO estimate based on UNIDO INDSTAT2

Food and beverage Textiles Wearing apparel Chemical Electrical machinery and apparatus Motor vehicles Fabricated metals Basic metals Development patterns

Textiles Wearing apparel Food and beverage Chemical Electrical machinery and apparatus Fabricated metals Basic metals Motor vehicles Development patterns

Source: UNIDO estimate based on UNIDO INDSTAT2 Changes in growth rates

EP∆∆ ∆∆∆∆∆∆∆∆−−−−−−−−− VA ∆∆ LP ∆∆ EP∆∆∆∆∆−−−−− − − − VA ∆∆ ∆∆∆∆−−−− LP EP+++ ++∆∆ ∆∆∆−−− − − − VA ∆∆ ∆∆∆∆−−−−−−− LP−∆∆∆∆∆∆∆ Food &beverage Textiles WearingApparel e ≥ 2 2 > e ≥ > e ≥ 1 1 > e ≥ > e ≥ 0 0 > e ≥ > e ≥ -1 -1> e Wearing apparel Food and beverage Textiles Food & beverages Textiles Wearing apparel

EP∆∆ ∆∆∆∆∆∆∆∆∆∆∆∆∆−−− VA LP∆∆ EP+++∆∆ ∆∆∆−−−−− − − − VA LP e ≥ 2 2 > e ≥ > e ≥ 1 1 > e ≥ > e ≥ 0 0 > e ≥ > e ≥ -1 -1> e Rubberplastic Electricalmachinery Rubber & plastic Electrical machinery Rubber & plastic

Effects of Country-Given Conditions

High Population DensityHigh Resource Endowments strongly positive Strongly Positive Machinery and equipment Electrical machinery and apparatus Motor vehicles Chemicals Rubber and plastic Non-metallic minerals Fabricated metals Food and beverages Strongly Positive Machinery and equipment strongly negative Textiles Paper Wood products Wearing apparel Tobacco Furniture, n.e.c. Strongly Negative Paper Rubber and plastic Non-metallic minerals Printing and publishing Wood products Food and beverages Motor vehicles Basic metals Chemicals Coke and refined petroleum Electrical machinery and apparatus Tobacco Strongly Negative Effects of Population Density and Resource Endowments on manufacturing value added Large countries Source: UNIDO estimate based on UNIDO INDSTAT2

Time Specific Effects

Emerging trends.... Source: UNIDO estimate based on UNIDO INDSTAT2 Textiles

70s Tobacco Textiles Wood products Coke, refined petro Chemical products Non-metallic mineral Basic metals Fabricated metals Machinery and equipment Electrical machinery Motor vehicles Furniture, nec ++++ Emerging trends (Employment pattern) Source: UNIDO estimate based on UNIDO INDSTAT2

70s Tobacco Textiles+ --- Wearing apparel+ --- Wood products Paper Chemical products+++++ Rubber and plastic Basic metals Electrical machinery Motor vehicles Emerging trends (Value added pattern) Source: UNIDO estimate based on UNIDO INDSTAT2

Emerging characteristics of manufacturing industries since 1980 Emerging characteristics since 1980 Industry RisingRubber and plastic Declining Tobacco Textiles Paper Chemicals Non-metallic minerals Intensifying capital useBasic metals Fabricated metals Electrical machinery and apparatus Motor vehicles Intensifying labour useFurniture StableFood and beverages Source: UNIDO’s elaboration based on CIC 2009; UNIDO Database (UNIDO 2012a).

Country-Specific Effects

Country experiences Source: UNIDO estimate based on UNIDO INDSTAT2

Country experiences Source: UNIDO estimate based on UNIDO INDSTAT2

Country experiences Source: UNIDO estimate based on UNIDO INDSTAT2

Country specific effects Source: UNIDO estimate based on UNIDO INDSTAT2

Speed of manufacturing development IndustryRepublic of KoreaMalaysiaSri Lanka Food and beverages Textiles Wearing apparel Chemicals Basic metals Fabricated metals Electrical machinery and apparatus Motor vehicles Note: The speed is expressed as an increase in value added per capita divided by the number of years taken over the range of GDP per capita from US$ 3,000 to US$ 4,500. Source: UNIDO calculations based on UNIDO INDSTAT2

Speed of structural change Source: UNIDO estimate based UNIDO INDSTAT2

$3,000GDP per capita (PPP) Value added per capita $10,000 Comparative advantage Country-specific and time effects Industry A Industry B Speed Level deviation Source: UNIDO’s elaboration Graphic representation of the role of comparative advantage and country-specific and time effects in manufacturing development