Deindustrialization

Abstract: Are natural resources a “curse” or a “blessing”? The empirical evidence suggests either outcome is possible. The paper surveys a variety of hypotheses and supporting evidence for why some countries benefit and others lose from the presence of natural resources. These include that a resource bonanza induces appreciation of the real exchange rate, deindustrialization and bad growth prospects, and that these adverse effects are more severe in volatile countries with bad institutions and lack of rule of law, corruption, presidential democracies, and underdeveloped financial systems. Another hypothesis is that a resource boom reinforces rent grabbing and civil conflict especially if institutions are bad, induces corruption especially in non-democratic countries, and keeps in place bad policies. Finally, resource rich developing economies seem unable to successfully convert their depleting exhaustible resources into other productive assets. The survey also offers some welfare-based fiscal rules for harnessing resource windfalls in developed and developing economies.

Abstract: I document a significant deindustrialization trend in recent decades that goes considerably beyond the advanced, post-industrial economies. The hump-shaped relationship between industrialization (measured by employment or output shares) and incomes has shifted downwards and moved closer to the origin. This means countries are running out of industrialization opportunities sooner and at much lower levels of income compared to the experience of early industrializers. Asian countries and manufactures exporters have been largely insulated from those trends, while Latin American countries have been especially hard hit. Advanced economies have lost considerable employment (especially of the low-skill type), but they have done surprisingly well in terms of manufacturing output shares at constant prices. While these trends are not very recent, the evidence suggests both globalization and labor-saving technological progress in manufacturing have been behind these developments. The paper briefly considers some of the economic and political implications of these trends.

Abstract: An influential line of argument holds that globalization causes economic uncertainty and spurs popular demands for compensatory welfare state spending. This article argues that the relationship between globalization and welfare state expansion is spurious and that the engine of welfare state expansion since the 1960s has been deindustrialization. Based on cross-sectional-time-series data for fifteen OECD countries, the authors show that there is no relationship between globalization and the level of labor-market risks (in terms of employment and wages), whereas the uncertainty and dislocations caused by deindustrialization have spurred electoral demands for welfare state compensation and risk sharing. Yet, while differential rates of deindustri-alization explain differences in the overall size of the welfare state, its particular character—in terms of the share of direct government provision and the equality of transfer payments—is shaped by government partisanship. The argument has implications for the study and the future of the welfare state that are very different from those suggested in the globalization literature.