What explains the job creating potential of industrialisation in the developing world?
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This paper examines why job creation in the manufacturing sector has differed widely across developing countries, using a modified Lewis model that captures the scale, composition and labour intensity effects of industrialisation on job creation. We then take the model to the data and compute these effects for 92 developing countries before examining the impact of trade integration, human capital and labour regulations on these effects. We show that while the scale effect has been mostly positive, the labour intensity and composition effects have been mostly negative. Moreover, for the same country, these three effects have often worked in opposite directions. Trade integration has a positive impact on manufacturing employment via the scale and composition effects, but a negative impact via the labour intensity effect. Human capital has a positive effect on manufacturing employment via the labour intensity effect. Finally, labour regulations have no discernible impact on manufacturing employment through any of the effects.
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