Is Manufacturing Destiny? On the Dynamics of Future Sectoral Shares and Development

We develop a simple empirical model of sector employment and output shares which, coupled with long-term projections of GDP per capita, provide indicative projections of the evolution and peak of manufacturing in lower income countries to 2050. These indicative projections suggest that cross-country income convergence will continue despite manufacturing peaking as a share of output.

This forecast might seem implausible: countries have historically developed and become rich by shifting the composition of their production into manufacturing (and eventually out of manufacturing and into services). But we argue there is reason to think that this is a realistic possibility. First, we argue that there is the potential for a significant relocation of the global manufacturing base in the next two decades that are not fully captured in forecast estimates. Second, notwithstanding this potential relocation, we argue that the role of manufacturing as the unique path to prosperity has likely been overstated. We make the case for cautious, conditional optimism.