Globalization, Industrialization and Economic Catch-Up

Abstract:

Industrialization was an essential path to modernization for early industrialized nations. Since the 1990s, however, premature deindustrialization has swept across much of the developing world, where industry contributed less to job creation and economic growth. Will developing countries still have opportunity to achieve economic growth and catch-up through industrialization? This article contends that the traditional path of industrialization has become more elusive in the era of globalization but the changing global economy and technological progress create new opportunities for developing countries. In today’s interconnected world, China’s economic rise has great implications for other developing countries. This article finds that China’s emergence as the world’s workshop has helped rather than hurt industrial development in Africa through two-way trade, but its impact may differ across the African continent, Africa’s industrial path may not follow an exportoriented approach. Instead, Africa’s future sustainability depends on its adoption of a diversified industrial policy.

Keywords:

globalization, industrialization, economic development, industrial policy,

Africa

JEL Classification Codes: F43, O14 DOI: 10.19602/j.chinaeconomist.2020.11.03

1. Introduction

郑宇

It is an important debate that under globalization, whether economic development leads to a “great divergence” or a “great convergence” among nations, and industrialization remains the core variable. Industrialization played a pivotal role in the modernization of early developed countries. The Industrial Revolution increased gaps between Western countries and the rest of the world. From 1820 to 1950, Latin American countries saw their per capita GDP fall from 3/5 the level of Western countries to 2/5, African countries from 1/3 to 1/7, and Asian countries from half to 1/10.

Since the 1950s, developing countries have striven to catch up with developed countries economically through industrialization. In the second half of the 20th century, a few emerging economies managed to successfully industrialize and close their gaps with developed countries, reversing the great divergence trend. Since the beginning of the 21st century, economic growth has gained momentum across the developing world. Yet the trend to deindustrialization has become evident as the industrial sector accounted for a smaller share of the economy and employment in developing countries. Reeling from financial crises, developed countries have seen their advantages over developing countries shrink. However, the great convergence is shrouded in doubt as developing countries move away from

industrialization-led growth.

In contrast, China’s industrialization has surged, contributing close to 1/ 4 of global industrial value-added. China’s emergence as the world’s workshop has mixed implications for other developing countries.

This article finds that since the 1950s, developing countries have undegone three stages of economic development. In the big- push industrialization stage of 1950- 1980, developing countries slightly narrowed their gaps with leading developed countries. In the neoliberal globalization stage of 19802000, developing countries started to diverge, with a few emerging economies managing to narrow the gap, whereas most stagnated. Since the beginning of the 21st century, developing countries have once again narrowed their gaps with developed countries, but pressing issues of sustainable development remain.

In the context of globalization, the traditional path of industrialization becomes more perilous. Economic development must overcome the dilemma of creating jobs while innovating. In the developed world, innovation has led to a loss of manufacturing jobs. With their comparative advantage in laborintensive manufacturing, developing countries have found it hard to advance technologically and create jobs while raising productivity through industrialization. This presents challenges and uncertainties to developing countries’ endeavors to catch up with advanced economies. Globalization has led to the diversification of industrial paths for latecomer countries, and labor-intensive manufacturing is not the only choice. Resource-based industrialization and service-based manufacturing, for instance, may become new paradigms for many countries.

China’s economic development has exerted various influences on industrialization of many developing countries. Although China’s fast-growing manufacturing export sector creates competition, China’s industrial transition also helps the global value chain be extended in more developing countries. China’s vast market also brings opportunities to developing countries, especially mid- and low-income African countries.

2. Economic Catch-Up of Latecomer Countries

According to neoclassical economic theories, latecomer countries will experience faster growth in their labor productivity and output as technology and capital spread from advanced economies to latecomer countries, so that development gaps between countries become smaller, i.e. the “convergence” of development. After reviewing the history of economic growth in developed countries, Nicholas Kaldor presented three growth “laws” on (i) correlation between manufacturing output and economic growth; (ii) correlation between manufacturing output and labor productivity in manufacturing; (iii) correlation between manufacturing output and overall economic productivity. These laws suggest industrial growth contributes significantly to overall economic growth. For latecomer countries, increase in industry productivity is particularly important to achieve economic catch-up. Data suggest that from 1950 to 2006, the industrial sector contributed half of the improvement in labor productivity in the developing world.

Since the Industrial Revolution, global convergence has been the exception rather than the norm. Far from being a global phenomenon, economic catch-up has only occurred in a few latecomer countries with large and competitive workforces. Successful latecomer countries have achieved higher growth. In the 19th century, latecomer countries including the United States, Japan, Germany and Russia recorded annual per capita GDP growth rates of 1.4%-1.9%, which was twice as high as Britain’s. After the 1950s, emerging economies experienced annual per capita GDP growth of 5%-9%, which was twice as high as in the United States. Since the 1950s, less than 10% of countries and economies have successfully crossed the high-income threshold from mid- and low-income levels. As can be found from the Growth Report released by the World Bank in 2008, only 13 countries managed to achieve an average economic