Deindustrialization and the Social and Economic Sustainability Nexus in Developing Countries: Cross-Country Evidence on Productivity and Employment

In an empirical investigation of the interactions between industrial structure and macro outcomes, an accounting framework was applied to relate changes in sectoral employment and output compositions to changes in overall productivity growth over time. The numerical results were interpreted using a taxonomy describing industrialization and deindustrialization in developing countries. The findings suggest that, in particular, industrial performance correlates with the overall performance of an economy, and therefore is the key sector in explaining the sustainability of different regional patterns in overall productivity and employment growth. That is, negative rates of productivity growth in the industrial sector are strongly associated with negative productivity growth for the economy as a whole, and vice versa. Further, slow industrial growth may lead to low road development, in which productivity growth trades off with employment growth, while high road development is defined as simultaneously expanding employment and overall productivity growth.