At the front end of the value chain, services such as product design, software development, and R&D are accounting for an increasing share of total value addition. In developing economies, peak shares of manufacturing in GDP are likely to continue to decline as technology erodes their comparative advantage in low-labor-cost production.Įstimates by the IMF show that between 19, the share of service inputs in aggregate manufacturing value-added increased by about 6 percentage points on average across countries. In developed economies, where the prospects for manufacturing value-added to grow are stronger, increasing contributions from services could keep manufacturing shares of GDP from rising. Since the 1970s, the share of manufacturing output in total world output has been on a downward trend. At the same time, the bar for participating in GVCs is rising as the new technologies elevate the standards, skills, and infrastructure required to compete successfully. Growth in global value chains (GVCs) has stalled as a greater share of division of labor is occurring within countries. To be sure, the pace of reshoring is still slow, but the nature of technological progress, rising demand for higher-skilled workers, and increasingly sophisticated consumer tastes support the potential for the pace of reshoring to accelerate.Īlso, the expected shedding of low-skill tasks by China-the world’s largest manufacturer-to other economies as its own labor costs rise may not happen as these tasks become automated and remain in China. Beyond the changing labor and capital cost dynamics, other factors such as proximity to consumers, the supply of skilled labor, and ecosystem synergies are playing a role as drivers of reshoring. In fact, there are emerging trends of reshoring in global manufacturing production back to some advanced economies. While technology is boosting productivity in today’s manufacturing hubs and largely offsetting rising wages, it is also reducing the cost of capital and slowing the need to offshore production toward lower-wage countries. China and the United States are leading in investment in artificial intelligence and its deployment in manufacturing and, along with Western Europe, account for most of the investment in the internet of things technologies. In 2017, around 75 percent of robot sales were concentrated in China, Korea, Germany, Japan, and the United States. The United States, Europe, and East Asia, which already dominate global manufacturing, are making the greatest investments in robotics and other Industry 4.0 technologies, thereby raising the prospect of further concentration of manufacturing activity in these hubs. Middle-income countries, particularly many emerging Asian economies, have scope to develop comparative advantages in the increasingly technology-led manufacturing, as shown by their relatively high scores on key competitiveness factors along with their growing domestic supply chains and consumer markets. Shifting comparative advantagesĪcross these changing prerequisites of success, today’s global manufacturing hubs in North America, Europe, and East Asia lead, and low-income countries in Africa and elsewhere lag, most notably in measures of internet access and digital readiness. New technologies are demanding higher-level skills, raising the capital intensity of production, elevating the importance of innovation ecosystems, and requiring strong digital infrastructure and readiness for manufacturers to be competitive.Ĭountries that currently possess or are investing actively in the skills, capital, and infrastructure of the future are the ones that will dominate global manufacturing in the years ahead. Developing countries’ comparative advantage in low-skill, low-labor-cost production is at risk as routine low-skill tasks are increasingly automated. As we explore in our chapter in the just-published book “ Growth in a Time of Change,” technology is changing the comparative advantages that drive competitiveness.
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