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Middle income trap and heterogeneities inmanufacturing’s contribution to development: acomparative analysis between China and Brazil

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Antonio Carlos Diegues | Qiuyi Yang

This paper aims to measure and analyze the contributions of Brazilian and Chinese manufacturing productive structures to development, in the period between 2000 and 2019. This measurement and analysis will be carried out in a comparative perspective to the patterns of industrial contribution to development among the main Middle-Income Countries (MICs), using shift share / structural decomposition techniques. Our analysis focuses on sectoral contributions, aggregated by technological intensity. The measurement of this contribution is analyzed along two dimensions: (i) productivity and (ii) average compensation of employees. Based on the analysis of intersectoral and inrasectoral and components, it is expected that a virtuous development process is associated with the reconfiguration of the productive structure towards activities that increase productivity and average compensation. In this context, the gap identified in the international literature on the subject is as follows: although it extensively analyzes the definitions and causes of deindustrialization as well as changes in the international organization of manufacturing, the literature still lacks empirical efforts to measure how these phenomena affect the contribution of manufacturing to economic development. Our paper contributes to this literature by analyzing the limits of the manufacturing’s contribution to development, adding an additional perspective to the U-curve framework. This analysis will be based on a reassessment of the model proposed by Rodrik (2016), starting from the sectoral levels of technological intensity as proposed by Tregenna and Andreoni (2020). Thus, the article will seek to econometrically verify whether there is an inverted-U relationship between per capita income growth in MICs and the capacity of the industrial sector to drive development through structural transformation processes and their impact on wage and productivity growth.

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