Asia’s Industrial Transformation: The Role of Manufacturing and Global Value Chains (Part 1)

49 Pages Posted: 22 Feb 2019

Date Written: July 25, 2018

Abstract

This paper argues that the single most important factor that explains East Asia’s development success was its fast structural transformation toward industrialization, manufacturing in particular. Workers moved out of agriculture into manufacturing, and the sector diversified and upgraded its structure. Manufacturing activities are subject to increasing returns to scale, and many manufacturing goods have high income elasticities of demand. For these reasons, manufacturing is referred to as the “engine of growth.” It is in the context of industrialization that openness played an important role in East Asia’s success, i.e., the connection between “export-led growth” (the relaxation of the balance-of-payments constraint on foreign exchange) and industrialization. Part 1 of the paper documents the extent of structural transformation in developing Asia. Second, it analyzes the relationship between the export-led growth model (i.e., the relaxation of the balance-of-payments constraint on foreign exchange) and industrialization. Finally, it reviews the industrialization experiences of Japan and the Republic of Korea, and discusses the recent deindustrialization debate.

Keywords: balance-of-payment constraint, deindustrialization, engine of growth, export-led growth, industrialization, manufacturing, structural transformation

JEL Classification: O10, O14, O25

Suggested Citation

Felipe, Jesus, Asia’s Industrial Transformation: The Role of Manufacturing and Global Value Chains (Part 1) (July 25, 2018). Asian Development Bank Economics Working Paper Series No. 549 (July, 2018). Available at SSRN: https://ssrn.com/abstract=3339076 or http://dx.doi.org/10.2139/ssrn.3339076

Jesus Felipe (Contact Author)

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

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