ADB Study Shows Manufacturing Still Powers Growth in Developing Nations

A new study by the Asian Development Bank is reviving a crucial debate in global development: Does manufacturing still matter? At a time when many developing economies are shifting quickly toward services, often without building a strong industrial base, the answer is more important than ever. The research, conducted by economists Michele Battisti, Antonio Francesco Gravina, and Matteo Lanzafame, finds that manufacturing remains a key driver of productivity and economic progress, especially for countries trying to catch up with richer nations.

The study draws on data from 31 developing and emerging economies over nearly 60 years. Its message is straightforward. Despite major global changes, manufacturing continues to play a central role in boosting productivity, creating jobs, and supporting long-term growth.

The Changing Path of Development

Traditionally, countries followed a clear path of development. They moved from agriculture to manufacturing and then to services as incomes rose. Manufacturing acted as a bridge, helping economies grow by introducing better technologies and more efficient production methods.

However, this path is no longer guaranteed. Many countries today are experiencing what experts call "premature deindustrialization." This means they are moving away from manufacturing too early, often before gaining its full benefits. Instead, they are shifting directly into services, which may not provide the same level of productivity gains.

Globalization, automation, and intense international competition have made it harder for developing countries to build strong manufacturing sectors. As a result, the traditional growth model is under pressure.

Why Manufacturing Still Matters

The ADB study finds that manufacturing remains uniquely powerful compared to other sectors. It offers strong productivity gains because it allows workers to learn new skills, use advanced technology, and benefit from large-scale production.

Most importantly, manufacturing helps slower-growing economies the most. Countries that are lagging behind can significantly boost their productivity by expanding their manufacturing base. In fact, the study shows that the gains from manufacturing are nearly twice as large for these countries compared to already fast-growing economies.

In contrast, the rapid growth of the services sector does not show the same impact. In many developing countries, services are dominated by low-skill jobs, such as retail or informal work, which do not significantly improve productivity.

A Turning Point in the 1980s

The research highlights a major shift around the early 1980s. Before this period, growth mainly came from moving workers out of agriculture into more productive sectors. After the 1980s, manufacturing became much more important as countries opened up to global trade and integrated into international markets.

This shift changed how economies grow. Manufacturing started to deliver stronger benefits, especially for countries that developed the ability to compete globally. Those that failed to build such capabilities struggled to keep up.

At the same time, the study finds that simply increasing investment or improving education is not enough. The returns from these factors have declined over time. This means that countries need more than just resources. They need the right systems and institutions to use those resources effectively.

The Role of Capabilities and Policy

One of the most important findings is that hidden factors such as institutional quality, technological readiness, and innovation capacity play a major role in determining success. Countries with strong systems are better able to turn investments into real productivity gains. Others, even with similar resources, fall behind.

The study also shows that many low-performing economies have significant untapped potential. If they had adopted the same policies and capabilities as top-performing countries, their growth rates could have been much higher.

This has clear policy implications. Governments should not give up on manufacturing too early. Instead, they should support industrial development while also building strong institutions, improving education, and encouraging innovation.

In simple terms, manufacturing is still a powerful engine of growth, but it works best when supported by the right environment. For developing countries, the challenge is not just to industrialize, but to do it smartly and sustainably.