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Deindustrialization
has long been considered an indicator of economic development and maturity. ‘Deindustrialization
is not always a pathological phenomenon, rather is the normal result of
industrial dynamism in an already developed country’ (Rowthorn and
Ramaswamy 1997 citing Rowthorn and Wells (1987), p. 6).
But the same is
not true for developing countries where the phenomenon of early
deindustrialization emerged as a shock. Dasgupta and Singh (2006) outline that
the declining share of industries in total GDP and employment in developing
countries is considered ‘premature deindustrialization’ and can be detrimental
for these economies. ‘The evidence of deindustrialization’ in these
countries is ‘at a much lower level of per capita income than observed
historically in today’s advanced countries during the period of
deindustrialization’ (Ibid. p.1).
The energy crises
is expected to play a major role in undermining growth of the industrial sector
of South Asian countries. International oil price volatility and energy shortages
are expected to hamper industrial growth leading towards ‘premature
deindustrialization’. This paper is an attempt to identify the role of oil
price volatility and energy shortages behind the industrial downfall in Pakistan, India
and Sri Lanka
from 1970-2010. The Cointegration, Error Correction Model, Impulse Response
Function (IRF) and Variance Decomposition techniques will be applied for this
purpose. The extent to which this phenomenon may prevail in the future can also
be tracked by IRF and Variance Decomposition.
The study finds that uncertainty
in energy consumption was factored out as a major variable undermining
industries, whereas domestic consumption did not appear as significantly
volatile. For the future, energy generation will remain a major variable determining
the path of industrialization in South Asian countries.
References
Dasgupta, S. and Singh, A. 2006, ‘Manufacturing, Services
and Premature Deindustrialization in Developing Countries - A Kaldorian
Analysis’, UNU-WIDER Research Paper No. 2006/49, United
Nations University
and World Institute for Development Economics Research, Finland, ,
accessed 12 Sept. 2013.
Rowthorn, R.E. and Ramaswamy, R. 1997, ‘De-industrialization:
Causes and Implications’, Working Paper, International Monetary Fund,
< http://www.imf.org/external/pubs/ft/wp/wp9742.pdf>,
accessed 17 September 2013.
Rowthorn, R. and Wells, J.R. 1987, De-industrialization
and Foreign Trade, Cambridge University Press, Cambridge
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