Explaining deindustrialisation from a vertical perspective: industrial linkages, producer services, and international trade

ABSTRACT

This paper aims to provide new findings on the extent of the deindustrialisation process by adopting a new subsystem approach. In particular, we have extended the subsystem approach in a multi-country setting using world input-output tables. An empirical investigation is carried out on the four largest eurozone countries based on the World Input-Output Database (WIOD). The results show the substantial fall in labour intensity of production, rather than a real decline in manufacturing. We establish a series of facts concerning deindustrialisation. First, international fragmentation of inter-industry linkages has rapidly increased. Second, a pervasive process of falling employment has been influenced by decline in domestic demand. Third, the direction of this change is driven by the technological and innovative intensity of subsystems. Fourth, we show increasing specialisation in producer services within the manufacturing subsystem.

KEYWORDS:

• Deindustrialisation
• international trade
• producer services
• subsystem approach
• technological intensity

SUBJECT CLASSIFICATION CODES:

• L60
• O14
• P51

Acknowledgements

We thank the editor, Cristiano Antonelli, and the referees for helpful comments.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 In section 3 we explain our methodology, taking into account, for example, the number of hours worked. To analyse the process of value added at the subsystem level, we follow the same procedure in substituting the vector of value added for the number of hours worked.

2 These are based on five final demand categories: (1) consumption expenditure by households; (2) consumption expenditure by non-profit organisations serving households; (3) consumption expenditure by government; (4) gross fixed capital formation; (5) changes in inventories and valuables.

3 Hence, all the terms in this equation are square matrices of the dimension n × n, where n is the number of branches in the I–O matrix.

4 Supplier dominated (SD) includes traditional sectors in which innovations are not developed internally. Small firms are prevalent, and new technologies are introduced by suppliers of machinery and capital goods. Scale intensive (SI) includes industries characterised by large firms. Technology change in these sectors is mainly incremental, given that firms try to exploit the learning-by-doing mechanism linked to their large size, and they introduce both product and process innovations. Specialised supplier (SS) industries generally consist of machinery and equipment industries. They include predominantly small firms that specialise in the production of advanced equipment and precision machinery. R&D is present, but an important innovative input comes from tacit knowledge and skills embodied in the labour force and by interacting with advanced users of new technologies. Science based (SB) includes industries in which in-house R&D and external collaboration are major sources of technology change. Firms are typically large, with important research laboratories and where innovation depends on scientific advances, leading to intense product innovation and a high propensity to patent (Bogliacino and Pianta 2016, 157).

5 The definition of producer services using the ISIC Rev. 3 includes: Post and telecommunications (64), financial intermediation (J), real estate activities (70), renting of m&eq and other business activities (71–74).