Economic Globalization, Industrialization and Deindustrialization in Affluent Democracies

Abstract

This study reexamines the relationship between economic globalization and manufacturing employment in affl uent democracies. After reviewing past research, including the wellsupported Rowthorn model, we propose a differentiation-saturation model that theorizes that globalization has a curvilinear relationship with manufacturing employment. Using two different techniques, we analyze the most comprehensive sample of 18 affl uent democracies from 1960-2001. We examine 12 globalization measures and provide the fi rst analysis of the curvilinear relationship between globalization and manufacturing employment. We fi nd that some aspects of globalization have linear effects on manufacturing employment, most of which are positive. We fi nd more evidence, however, that globalization has a curvilinear, inverted U-shaped relationship with manufacturing employment. The evidence for the Rowthorn model is mixed. GDP per capita and its square do not have robust effects, but agricultural employment is one of the most important causes. Including globalization in the model weakens the evidence for the Rowthorn model. There is some evidence that globalization has different effects across different varieties of capitalism, regions and historical periods. Ultimately, our analyses partially support both the Rowthorn model and our differentiation-saturation model. One of the most dramatic social changes of the past half-century has been the decline of manufacturing employment in affluent democracies. As Figure 1 shows, manufacturing employment as a share of the labor force declined substantially from 1960 to 2001 in the 18 affluent democracies in our study. In the early 1960s, manufacturing employment averaged nearly 40 percent across these countries. In addition, the maximum value countries (Germany and Switzerland) approached 50 percent. Even Ireland, the least industrialized in 1960, had more than 22 percent employed in manufacturing. By 2001, massive deindustrialization had occurred across all 18 affluent democracies. The most industrialized country had fallen to less than 30 percent manufacturing employment, the average was below 25 percent, and the least industrialized country was below 20 percent. Certainly, the widespread decline of manufacturing was not uniformly linear. From 1960 to 1975, the least industrialized countries experienced growth in manufacturing employment – the minimal value rose from 22.2 in 1960 to 28.7 in 1973. During that period, heavily industrialized countries reached a plateau. The maximum value remained above 48 percent until 1971. Partly driven by manufacturing growth in the less industrialized among these countries, the mean peaked slightly above 38 percent in 1965 and remained above 36 percent through