Salik Mehboob Awan
Industrialization is the outcome of industrial revolution as productivity growth drastically increased in Europe and the world got familiar with a transition from agriculture to industry. Industrial activities also give birth to another sector i.e. services sector and economic growth got experience of a proper structural transformation from agricultural to industrial and then to services sector. Industrial sector is largely characterized by manufacturing sector and according to Kaldor (1967), ‘Manufacturing is the engine of economic growth’. But in current century some industrial countries are experiencing a new trend called deindustrialization i.e. a situation that creates less employment and output share of manufacturing to GDP.
Later on the phenomenon of deindustrialization emerged in developing countries which means that developing nations are becoming service economies without having proper experience of industrialization. Furthermore, according to Dasgupta and Singh (2006), Deindustrialization in developing countries is at much lower level of per capita income than today’s advance countries during their time of industrialization. Among these developing economies, there is also an evidence of stagnant manufacturing sector in Pakistan, hence indicating deindustrialization, where share of manufacturing sector to GDP is almost stagnant and the economy transformes from agricultural to services sector. Fifty years data of Pakistan economy from 1973 to 2022 depictes that agricultural value addition as percentage of GDP has decreased gradually while services value addition to GDP has increased largely and manufacturing value addition to GDP is almost stagnant. According to Rodrik, 2015 industrialization benefits economy in both economic and social ways. In economic ways it expands urbanization which create working and industrial class, while in social ways it creates new behaviors that leads to an increase in trade unions and political movements. But deindustrialization takes the country away from these benefits. Increasing trends of information technology boosts services sector employment while declines employment and output in manufacturing sector and this gap creates deindustrialization, but for a developing country like Pakistan there may be some other reasons that causes decline in manufacturing sector employment and output.
Increasing interest rate could be the one reason because lower the interest rate higher will be the manufacturing loans that leads to capital expansion so that will expand industrial activities through out the country by employment and output in this sector. The second reason can be increasing energy prices especially electricity, gas and oil prices. Industrial and manufacturing sector requires huge amount of electricity plus oil and gas to run their business. Consecutive increase in energy prices will lead to decreas in manufacturing output and as a result it increases consumer prices and lowers its demand. Consequently decline in production declines employment in this sector and causes deindustrialization in the country.
If government overcomes improper structural transformation along with expansion in services sector but not at the cost of manufacturing sector plus reduction in interest rate and energy prices then this issue can be settled in near future otherwise, public cannot be saved from its aftermaths.
