There is increasing evidence on the effects of deindustrialization in middle-income economies, particularly in the countries of Latin America. These countries affected by deindustrialization are increasingly faced with declining share of GDP in their manufacturing sector and the share of manufacturing employment due to changes in their economic policies and practices (Palma, 2005).
Additionally, in recent decades, some advanced economies have recorded a significant decline in manufacturing sector's share of GDP and the share of manufacturing employment (Tregenna, 2011).
Trade and financial liberalization have caused problems to developing countries in terms of an inverse relationship between the employment in the manufacturing sector and income per capita.
I tbonk you can yee in in example of Croatia. Right now there is a lot of talk about tne neccessity of reindustrialization based on smart specialization.
In most transition economies on the scene is the process of on-going premature de-industrialization by resulting in significant reduction of the country’s industrial capacity, particularly in the heavy industry or rather manufacturing industry. Reindustrialization ?! Is it possible to change some trends... Is it feasible....?
A possible outcome would be a CA deficit which might end up in an exchange rate crisis or/and a problem called ' sudden stop ' in the relevant literature (capital flights).
A trend of further de-industrialization can result in high unemployment and an increase in the number of micro-companies and family enterprises that are the only source of survival for the growing population. Such small businesses and family businesses have proved to be harmful to economies in transition because they can potentially moved from formal to the informal economy.....
Premature de-industrialization is a current debate in Brazil. I would point out, offering a less gloomy view, that this is a natural consequence of the decrease of the industrial sector share in the total GDP, as a country continues to grow. There is a non-linear relationship between GDP per capta and industry as a share of GDP. As a consequence, resources, including labor force, might be transfered out of the industrial sector toward activities, such as services. This is also a natural consequence of urbanization, following industrialization. The challenge of these transition economies is to foster a more productive service sector so that the de-industrialization brings about a service based economy, based in high end and knowledge intensive activieties. Thing about IT and logistic sectors, which are service based. Trade liberalization, although might contribute to shuting down innefficient industries might spur demand for other kind of manufacturing goods, for instance, capital goods, that may end up helping several industrial activities.
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