Industrialisation and Deindustrialisation, 1995–2019: Production Structures, Global Value Chains and Demand Constraints

Abstract

The paper examines whether observed manufacturing contraction can be attributed primarily to changes in production organisation—domestic and international outsourcing—or whether increasingly binding domestic or foreign demand constraints provide a more general explanation. Using a growth‑decomposition framework applied to production functions and output‑use data from Inter‑Country Input‑Output tables, we document how supply‑ and demand‑side forces have shaped the evolution of manufacturing shares over 1995–2019, then identify countries at risk of deindustrialisation. The approach provides a detailed yet globally consistent picture of structural change across countries and sectors. The results highlight a dual impact of outsourcing in developed economies, when domestic or international outsourcing often signals functional specialisation and efficiency gains, but may instead signal weakness. We note also the importance of global value chains (GVC) integration in developing countries, and the complementary role of the domestic value chain, as successful GVC−based industrialisation also requires developing a strong domestic supply chain, particularly between high and medium technology industries.