Manufacturing and Jobs in South Asia

The volume takes a comprehensive view in order to promote manufacturing sector and job creation in South Asia taking into account stage of development, macro-policy regime, comparative advantages and competitiveness, industrial policies, trade and investment, labour market issues, and structural constraints. The volume has two parts. Part A explores country cases in detail for select countries in South Asia, primarily focusing on opportunities and challenges of job creation in the manufacturing sector. The countries covered for this purpose are Bangladesh, India, Nepal, Pakistan and Sri Lanka. The core issues include the contours of the manufacturing sector in the wider context of the national economy with focus on employment creation over the past three decades or so; analysis of what constrained growth of the manufacturing sector in the past, and how they are associated with employment creation. The relative importance of the external sector has been looked into in detail from the point of view of manufactured exports as well as integration with Global Value Chains. Part B presents key chapters on patterns of structural transformation, skill development, innovation system and competitiveness that may lead to deeper understanding of strategies on industrialisation and employment creation in the context of South Asia.

Bangladesh as an emerging South Asian economy intends to achieve considerable economic progress in order to significantly reduce its poverty and income inequality. The consistent level of economic growth maintained over the past decades has contributed to reduce Bangladesh’s poverty level—from 56.7% in 1992 to 23.6% in 2016. Alternatively, this data indicates that a large section of people lives below the poverty line who needs to be taken out of the poverty trap. Over the past decades, the structural transformation experienced by Bangladesh economy led to more share of non-agriculture sector not only in GDP but also in employment. Given the persistence of high level of poverty, job creation in the non-agriculture sector, particularly in the manufacturing sector, is still considered to be a major development strategy of Bangladesh. Besides, creating ‘decent jobs’ for the working population is another important aspect related to the sustainable economic growth of the country.

South Asia faces uneven and transformative growth problems, despite excellent average growth performance. The threat of secular stagnation and prolonged crisis in today’s global economic system are adding complexities to these economies. It is evidently clear that even after many years of the global financial crisis countries are confroned with both cyclical and structural predicaments, emanating from, among others, declining trade flows, stagnating investment, diminishing productivity growth and above all aggravating unemployment and underemployment (UNDESA 2016). Such a phenomenon by raising questions on the efficacy of neo-liberal policy regimes indicate the need for devolving alternatives for overcoming from such deepening problems (Ocampo 2011; Korz 2015; Khanal 2017). Grounded on empirical evidence, recent literature emphasizes on the need of reviving, among others, the manufacturing sector for revitalizing the real sector to generate productive employment, key toward inclusive growth and sustained development (UNIDO 2013; Salazar-Xirinachs et al. 2014). Equally noticeably, inclusive and sustainable industrialization forms one of the main ingredients of the Sustainable Development Goals (SDGs).

The manufacturing sector in India contributes around 15% of its GDP, a share which is significantly lower than the newly industrialised countries of Asia and those of many industrialised nations (who have a lower share now compared to the earlier industrialisation phase). Apprehensions run high that without steady expansion of the manufacturing sector, India is set to lose out on its demographic dividend where a large fraction of the workforce would be languishing in less productive farm and non-farm activities. The share of manufacturing in total employment increased to 12.2% in the first-half of the last decade and declined to 11% in the second-half of the decade indicating higher capital intensity.

Empirical evidence suggests that higher economic growth driven by liberal trade and investment under globalization has been associated with growing inequalities at different levels. This has been often attributed to decline in the share of labor in national income resulting from declining employment and deterioration in the quality of employment generated. Given the increasing role of manufacturing exports in generating employment, this chapter analyzed the employment in India’s manufacturing exports with focus on both quantity and quality. With a view to characterize the industries with respect to their export-employment potential the study identified four industrial categories; 1) export-employment champions, 2) export champions-employment laggards, 3) export laggards-employment champions and 4) export employment laggards. Our findings suggest that export-employment champions and export laggards and employment champions contribute to more than sixty per cent of total manufacturing employment. These two categories also create better quality of employment as compared to other categories and the manufacturing sector. Apart from their better performance in terms of quantity and quality of employment they are also found instrumental in more equitable distribution given the higher share of wages in the value added of such industries. The disaggregated analysis, however, observed significant inter-industry variation within each of the industrial categories with respect to the quantity and quality of employment generated. Based on these findings the study makes the case for a strategic approach towards employment oriented export promotion strategy by harnessing information communication technologies.

Along with productivity growth, job creation has always remained a central focus of economic policies the world over. In this regard, industrialization has emerged as a major policy to create employment opportunities and manufacturing sector, as an employer, has earned a greater attention, the world over. Continuous creation of jobs becomes even more crucial for developing countries wherein the population growth continues to add to the army of unemployed and economic recoveries are more often jobless. We argue that manufacturing sector in Pakistan has the potential to serve as the key driver of growth and employment generation. And that these gains are contingent on restoring the external competitiveness of overall tradable sector of the country.

A review of Sri Lanka’s strategies to deliver substantial and equitable growth paints an arresting picture for those interested in understanding the dynamics of development endeavors in emerging Asia. When examined from a broader perspective, the island nation wields a track record antithetical to South Asia’s postcolonial developmental woes. It has experienced marked success in raising human development indicators to a standard comparable with that of advanced nations while utilizing resources in a manner that belies its modest income levels.

The South Asian countries, it is often said, have been achieving fairly rapid economic growth but this growth has been largely jobless so that they now face a daunting employment challenge. The story is not in fact quite so simple. Not all the countries of South Asia have been achieving rapid economic growth and economic growth has not been jobless in any of the countries. What can justifiably be said is that economic growth in these countries should have improved employment conditions much more than it actually did.

Global economy is steadily moving towards the fourth industrial revolution (4IR). The 4IR is changing the nature of economic activities, organizations, businesses, institutions and the lives of the people across the globe (Schwab 2017). Historical experience of the industrially advanced countries and more recently the newly industrializing countries of East Asia show that the industrialization has remained the engine of economic growth and development. The industrialization has transformed the sources of livelihood of the people and sustained institutional changes. The spread effects of industrialization have also impacted on the structural and institutional changes across the countries. The central dynamic force behind the industrial revolution has been epochal innovation (Kuznets 1966), and each industrial revolution has its own distinctive innovation. The newly industrializing countries of East Asia also have unique innovations to catch-up with the advanced countries (Lee 2013). The technological innovations not only change economic activities but also undergo dramatic skill requirements. The technological innovations to succeed require suitable institutional changes and human capital formation. Where these conditions are not fulfilled, the industrial revolution either has not happened or distorted economic development. However, the industrial revolution in some parts of the world does affect the rest of the world in several dimensions. Even with the low level of development, the most of the developing countries are witnessing a trend towards high-tech industrial development and that also reflected in terms of increasing share of trade in high-tech manufacturing commodities (UNIDO 2015).

This volume has gathered a great deal of evidence on industrial development, structural transformation and employment generation in the South Asian region. In this concluding chapter, we recapitulate the cumulative evidence and insights drawn from the chapters. For various practical reasons, South Asia shares a common development context and demography. Economies in South Asia had initiated economic liberalisation more than two decades back. This resulted in an increase in capital intensity in the manufacturing sector together with falling employment intensity, even as some improvement in labour productivity is observed during this phase. However, rise in capital intensity in the industry has not necessarily contributed to technological deepening measured in terms of value addition perhaps, due to serious innovation shortfall. Although India has overwhelming presence in the region, it has almost similar challenges and opportunities in the traditional industries that are pursued in the region. India definitely has much wider industrial base and is better placed in terms of technology-intensive manufacturing.