Globalization and Industrialization in 64 Developing Countries,1980-2003

Yunus Kaya, University of North Carolina, Wilmington

This study investigates the effect of the latest wave of economic globalization on manufacturing employment in developing countries. It revisits the classic debate on the effect of internal and external influences on industrialization, and extends this debate to contemporary developing countries. In the process, it assesses the evidence for development/productivity, world systems/dependency and globalization explanations, and uses a comprehensive dataset on 64 developing countries from 1980 through 2003. The results generally show that manufacturing employment increased in most developing countries. First, this study finds that the level of economic development measured by gross domestic product per capita is the most important factor influencing the size of manufacturing employment. Second, economic globalization also influences manufacturing employment in developing countries, but mainly through trade. The size of exports and low-technology exports have a significant positive effect on manufacturing employment in developing countries. Finally, rhe analysis provides limited support for world systems/dependency theories. Raw materials exports do not significantly influence manufacturing employment while foreign direct investment has a negative impact in some models. 'Hiis study concludes chat the latest wave of economic globalization contributed to the expansion of manufacturing employment in developing countries, although ir is not the most significant factor shaping the size of manufacturing employment in these countries.

lilis study explores the effect of the latest wave of economic globalization on manufacturing employment in developing countries. TKe ongoing integration of national economies since thelS'** and 19''' centuries has intensified in the past two or three decades (Held et al. 1999). Some scholars argue that economic exchanges between relatively independent parties have been replaced by complex and highly interdependent systems of industrial production and economic exchange organized on a global scale (e.g., Dicken 2003; Gereffi 2005). In recent decades, developed countries saw a significant portion of their consumption made possible by industrial production in developing countries, while developing countries became exporters of manufacturing products.' Concurrently, there were substantial declines in manufacturing employment in developed countries and significant increases in developing countries. The effect of the latest wave of globalization in this process is subject to heated debates both in the social sciences and the public
An earlier version of this article mas presented in the 2006 Annual Meeting of American Sociological Association in Montreal. Quebec. I am ^atefiil to David Brady for constructive comments and su^estiom on various drafis, and thank Gary Gereffi, Emilio Parrado, Suzanne Shanahan and Ken Spenner for suggestions. Direct correspondence to Yunus Kiiya, Department of Sociobgy and Criminobgy. UNC Wilmington. 601 South College Road. Wilmington, NC28403-5978. E-maiL kayay@unav.edu.
- The Univflrsi,, ot Ndnh Carolina Press orces 8S(311T53-T182. March ZOID

1154 Social Forces 8Z{Z)

sphere. Some see the latest wave of globalization as a significant force on manufacturing employment in developing countries {e.g., Wood 1994; Dicken 2003). However, most of the debate and empirical analyses are confined to developed countries, and comparatively little research has been done on developing countries (e.g., Alderson 1999; Brady and Denniston 2006). Industrialization has always been a central topic in sociology. Most of the founding theories of sociology were built on the industrialization that took place in Western Europe and the United States in the 19'^ and early 20''' centuries. The spread of industrialization throughout the developing world has also been an important concern for scholars. The effea of externalfectorson the industrialization of developing countries has long been a contentious topic in these debates. Many scholars, ranging from early social theorists, convergence and modernization theorists of the 1950s and 1960s, and contemporary economists, perceived industrialization as a process associated with economic development and productivity within a country. They predicted that manufacturing employment will rise and decline across countries as they pass through the stages of economic development. However, many others argued that economic development and industrialization in developing cotmtries is different from the early-industrialized cotmtries. Dependency and world-systems theories offered an account of the world economy as a whole, in which the developing economies are dependent on early-industrialized countries.
Past Research

A strong line of thinking in the social sciences perceives industrialization as a process associated with the level of economic development and productivity in a country where external factors play a lesser role. One theory holds that the relationship between development and productivity, and industrialization should be similar across cotmtries. In contrast, world-systems and dependency theorists argue that there is an exploitative relationship between developing and earlyindustrialized countries, which limits the industrialization of the former. Recently, the rapid changes in the world economy led many to argue that economic globalization became a powerful influence in expanding manufacturing employment in developing countries.
Economic Development, Productivity and Manufacturing Employment

Many scholars, explicidy or implicidy, predict that when conditions are met, the process of industrialization in Western countries will replicate itself in other countries.'Among earlier theorists, Marx saw a uniform path of change for every society, in which feudalism, capitalism and socialism emerge consecutively. Saint-Simon thought that all societies would transform into industrial societies (Kerr 1983). In the early 1940s, Clark (1957[1940]) proposed an influential theory of industrial employment in a country. He claimed that as an economy develops, the price of

Globalization and Industrialization 1155 agricultural products and the relative demand for diem decrease, while the demand for manufacturing increases. As a result, manufacturing employment iticreases. In the later stages of economic development, however, the demand for manufacturing also decreases while the demand for services increases. This shifts employment from manufacturing to services. Thus, Clark projected a reversed U-shaped relationship between economic development and manufacturing employment. In the recent debate on deindustrialization in developed countries, most economists adopt Clark's view, but add productivity to the story. Krugman and Lawrence (1994) argue diat spending on manufacturing goods and their prices decline due to higher productivity in manufacturing. Rowthorn and Wells (1987) and Rowthorn and Ramaswamy (1997) claim that deindustrialization emerges with increasing productivity and has litde to do with Foreign direct investment or trade. ' The question of industrialization in countries other than the early-industrialized countries came under greater scrutiny by both Western and non-Western intellectuals with the emergence of colonies as independent nation-states after the Second World War.' In this period, two relatively optimistic theories envisioned the realization of modernization and industrialization in developing countries. Modernization theorists argued that industrialization in developing countries is possible through the replication of the conditions that created modern economies in early-industrialized countries (Levy 1966). Inkeles and Smith (1974) predicted the emergence of "modern man" in developing countries as a building block for modern industrial societies. In similar fashion, convergence theorists predicted that institutional structures and labor relations similar to that of industrialized countries will emerge in developing countries (Kerr, Harbison, Dunlop and Myers 1960; Moore and Feldman I960; Moore 1965). In sum, both earlier and contemporary proponents of this account expect similar patterns o manufacturing employment across countries, in which the size of manufacturing employment can be predicted by the level of productivity and economic development.

Wor/ Systems and Dependency

In the 1960s and 1970s, dependency and world systems theories challenged modernization theories. These theories advanced the position that there is a relationship of dependency and exploitation between developing and industrialized countries (Cardoso and Faletto 1979).' Wallerstein (1974, 1980 and 1989) argues that a European-centered world system was established in 1450-1640, which he calls the long 16^^ century, and was continued in subsequent cycles. This system is organized around two sets of countries: the core and the periphery. Powerful industrialized countries constitute the core, and the rest of the world constitutes the periphery.*" Wallerstein proposes that a country's mode of integration into the world econotny determines development outcomes. Core countries do most of the industrial production and use peripheral countries as markets and the source for raw materials.

1156 Social Forces 8813]

Chase-Dtmn and Grimes (1995) explain that, in the post-colonial world, the maintenance of the world system is achieved through market mechanisms rather than the use of direct threat by military might as in earlier times. Dependency and world systems theorists perceive trade and foreign capital as the main market mechanisms. Foreign trade composition, in which a peripheral country exports raw materials and semi-processed goods and imports manufactured and/or capital goods, is petceived as an indicator of dependence on core countries. Therefore, dependency and world systems theorists perceive open trade as detrimental to the development of peripheral countries and fevor protectionism and disengagement as necessary for industrialization (Cardoso and Faletto 1979). For example, Schwartzman (1995) ai^es that trade dependence hurt industrialization in Brazil and Mexico. In the 1980s, FDl in developing countries became a focus of inquiry for world systems and dependency theorists (Firebaugh 1997). Bornschier, Chase-Dunn and Rubinson (1978) claim that FDI in peripheral countries creates investment dependence. They and others argue that this dependence on foreign capital impedes development in the third world countries (Bornschier and Chase-Dunn 1985; London and Smith 1988; Boswell and Dixon 1990).^ Despite providing a rigorous operationalization and test of world systems and dependency theories, these scholars focused on economic growth and development, not industrialization. However, if the dependency theorists are correct, perhaps it is reasonable to expect FDI in developing countries to be a negative influence on industrialization as well. For example, Cardoso and Faletto (1979) initially suggested that the dependent industrialization Latin America limited employment in manufacturing.*' Bornschier, Chase-Dunn and Rubinson (1978) and Bornschier and Chase-Dunn ( 1985) argue that while FDI flows might enhance economic growth in developing countries in the short run, the long-term dependence on foreign capital, indicated by FDI stock, hurts economic growth. Although it is crucial to acknowledge that dependency scholars have mainly focused on development, perhaps an extension of their beliefs would conclude that long-term dependence on foreign capital impedes the development of domestic capabilities for industrialization and prevents a country from industrializing fully.
I

Globalization and Manufacturing Employment

The term globalization was not widely used in academic and public discussion until the early 1990s (Robertson 1992). By the end of the decade there were countless articles and books on globalization. Although it has many dimensions and the theories of globalization have long historical trajectories, the locus of globalization is the change in the world economy over the past two or three decades.'' The global reorganization of manufactuting, which is referred to as the new international division of labor, is considered by some to be the defining characteristic of the latest wave of globalization (Frbel, Heinrichs and Kreye 1980; Castells 1996; Hoogvelt 1997). Scholars think that manufacturing is now or-

Globalization and Industrialization 1 1 5 7

ganized through complex networks of firms, which are sometimes labeled as Global Commodity Chains or Global Value Chains (e.g., Gereffi 2005; Dicken 2003). Within these networks, firms from developed economies relocate their manufacturing activities in developing countries by investitig in or subcontracting, while they focus on higher value activities such as research and development, and marketing (Gereffi 2001; Kaplinksy 2000). This, then, translates into increasing manufacturing exports and FDI, and expanding manufacturing employment in developing countries. Using Heckscher-Ohlin theory,'" Wood (1994) claims that manufacturing exports increase the size and earnings of low-skilled workers in developing countries. He insists that the abundance of low-skilled labor in developing countries creates a comparative advantage, and argues that trade lessens the manufacturing autarky of developed countries in which they produce most of the products for domestic consumption (Wood 1995)." Dodzin and Vamvakidis (1999) show that increasing levels of trade led to greater levels of industrialization, with the emergence of labor-intensive industries in predominantly agricultural economies from 1970 to 1995. Similarly, Bollen and Appold (1993) demonstrate that manufacturing exports significantly increases the size manufacturing employment. Many now believe that the low production costs in developing countries attracted foreign investment in recent years, even more so than domestic markets and natural resources. A U.N. report (2000:2) introduces Bangladesh as "Besides representing a potential market in itself (and potential access to the much larger South Asian market), Bangladesh also offers considerable potential as a base for labour-intensive manufacturing.''^ Some use the concept export-oriented FDI lo refer this phenomenon (see Zhang 2005). According to this idea, firms relocate their manufacturing facilities in places such as China and Bangladesh to take advantage of low costs and ship their products all over the world rather than selling in the domestic markets of these countries. To the extent that this new type of FDI exists, it may positively influence manufacturing employment in all developing countries. In recent years, some developing countries became outward international investors, especially in other low-cost developing countries as the costs of production increased in their domestic economies (GerefE 2005; Gereffi and Memodovic 2003).'- The investments by Taiwanese and Korean firms in mainland China exemplify this trend (Zhang 2005). This FDI outflow may halt the increase in manufacturing employment and cause a decline. For example, Chen and Ku (2003) found that Taiwanese firms that invest abroad significandy decrease the size of their manufacturing labor force within Taiwan. Any recent declines in manufacturing employment in these countries might be due to such outward FDI. One of the main features of the latest wave of economic globalization has been the globalization and dispersion of manufacturing. This process has allowed firms to utilize low labor costs around the world, as well as looser tax and environmental regulations. This, in turn, has contributed to the industrialization of developing

1158 Socia/Forces 88{5) countries and the deindustriaJization of richer countries. To my knowledge, no study has fully scrutinized the various dimensions of globalization s impact on manufacturing employment in developing countries during this most recent period.
I

Data and Methods To explore the influence of globalization on manufacturing employment in developing countries, this study analyzes an unbalanced panel of 64 developing countries from 1980 to 2003.'^ The sample includes all developing countries that met three criteria: a population of half a million or higher, less than $5,000 GDP per capita in 1980, and data on the labor distribution for at least two time points.'** All countries fitting these criteria have been included in order to increase the representativeness of the sample.'^ Ex-communist countries are excluded from the sample."^" The changes in manufacturing employment in these countries may be the result of the transition to capitalism because they experienced massive industrial restructuring and privatization, following the fall of communism (Nee 1989; Starkl992). In Wallerstein's terminology, my sample is composed of peripheral and semi-peripheral countries. Data have been collected for years 1980, 1985, 1990, 1995,2000 and 2003. Because of missing data for some countries, countries have between two and six observations. The unit of analysis is the country-year and the total number of observations is 234. , The Dependent Variable i

Table 1 presents descriptive statistics and sources for all variables. The dependent variable is the manufacturing share of employment, calculated as the percentage of total employment in a country (World Bank 2007). The manufacturing share of employment is the standard indicator of industrialization in a country and is used commonly in similar studies (Alderson 1999, 1997; Brady and Denniston 2006; Rowthorn and Wells 1987). Figure 1 shows the trend in manufacturing employment (the averages of country percentages) in the countries in the sample between 1980 and 2003. The average manufacturing employment increased from 15 percent in 1980 to 22 percent in 2003.'^ This suggests a significant surge of industrialization in developing countries after 1980. By comparison, manufacturing employment declined to an average of 25 percent by 2001 in developed economies (Brady and Denniston 2006). However, there is also great variation across countries. Manufacturing employment was 15 percent in the 5'*'percenrile countries in 2003, while it was 32.5 percent in the 95''' percentile. A close analysis of individual cases demonstrates that some countries are now experiencing a decline in manufacturing employment after an earlier surge of industrialization. In South Korea, manufacturing employment peaked around 36 percent in the early 1990s and gradually decreased to 27 percent in 2003. Similarly, it rose to 33 percent in Malaysia in the late

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Globalization and Industrialization 1161 Figure 1 Trends in Manufacturing Employment

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Globalization Variables

Economic globalization operates through the international flows of goods and services, and the stocks of capital. Globalization measures aim to capture both the size and the structure of trade and foreign direct investment in developing countries." The first globalization variable is exports measured as a percentage of GDP (World Bank 2007). This variable is expected to have a positive effect on manufiicturing employment. Second, low-technology exports are measured using Lalls (2000) classificarion/' a percent of all exports. This variable is expected to have

1162 Soda/Forces m2)

a positive effect (Dicken 2003; Wood 1994). Third, raw material exports are calculated with Lall's (2000) classification by combining primary products and resource-based products minus oil (both crude and refined) and natural gas exports [(PP+RB)-(oil and gas exports)].''* This variable is also a percent of all exports. Raw materials exports are seen as one of the main mechanisms of dependency and should have a negative influence on industrialization. Similarly, some scholars argue that dependence on raw material exports can impede industrialization, a phenomenon that they refer as the "resource curse."(Auty 2000) The fourth globalization variable is inward FDP FDI can be measured both as a stock and flow, and this study examines both. The FDI stock variable enters into the models as the percent of GDP. The FDI flow variable is calculated by taking the three-year average (t, t-1 and t-2), because of fluctuations in annual FDI flows, and dividing it by the current GDP in t. The globalization account expects that inward FDI wiW positively afl^ect manufacturing employment (Zhang 2005), although this account rarely difl^erentiates between stock and flow. By contrast, dependency theorists argue that FDI flows may have a short-term positive effect on economic growth in developing countries, while FDI stock should have a long-term negative efl^ect (Bornschier, Chase-Dunn and Rublnson 1978; Bornschier and Ghase-Dunn 1985). Thus, FDI flows should boost manufacturing employment, while FDI stock should undermine it.-*^ In addition, outwardFDIis included in the models. Many developing countries are now outward foreign investors (Gereffi 2005; Ghen and Ku 2003).'^ Outward FDI, which is also measured in terms of both stock and flow, should have a negative impact on manufacturing employment. Finally, some models include inward FDI in primary and secondary sectors, both stock andflow,as a percent of total FDI. The primary sector comprises agricultural and mining activities, while the secondary sector mainly comprises FDI in manufacturing (UN 1992, 1994, 1996, 2000, 2003, 2004; OEGD 2001; UNGTAD 2008). i h e sectoral composition of FDI, especially FDI in the secondary sector, may have a significant impact on manufacturing employment. For example, some recent studies showed a significant impact of FDI in the manufacturing sector on environmental outcomes in developing countries (Jorgenson 2007a, 2007b; Jorgenson, Dick and Mahutga 2007). To show that there is not a collinearity problem among the independent variables, the effects of the independent variables on each other are also estimated." In these models, the fits indicated by the R-squared are modest. Thus, only small portions of the variance in the independent variables are accounted for by other independent variables, and the estimation of unique effects is not problematic.^' Appendix 1 s h o w s that most correlation coefficients among independent variables are below .5, and only two are over .7.

Glofaalizaton and Industrialization 1 1 6 3

Models
Ordinary least squares regression is not appropriate for the cross-sectional, unbalanced panel data used in this analysis. Pooled cross-sections of different time points violate the assumption of zero correlation between error terms in ordinary least squares regression (Wooldridge 2003). Facing the possible existence of unmeasured time-constant, cross-national heterogeneity in this type of data, researchers often usefixed-effectsor random-effects models (Hsiao 2003; Wooldridge 2003). There has been a heated debate on the choice between random-effects and fixed-effects models. Halaby (2004) states that fixed-effects models more effectively control for unobserved unit effects, and strongly advocates for their use against possible bias and inconsistency due to unobserved unit effects. Fixedeffects models may also be more stringent against reverse endogeneity (Winship and Morgan 1999). However, a problem some researchers see in these models is that they do not allow the independent variables to explain between country variation {e.g., Nielsen and Alderson 1995). Fixed-effects models run ordinary least squares regression after differencing variables from their country-specific means. Therefore, they dispose of all cross-national variation, and only model the historical variation within countries. Random-effects models take into account crossnational variation by using a general error term in addition to country-specific error terms and differencing variables from on\yz portion of the country-specific means (Woolridge 2003). Fixed-effects models also cannot handle time-invariant variables (i.e., dummy variables) (Beck 2001; Beck and Katz 2001). Some similar studies used fixed-effects models with first-order autocorrelation correction (Alderson 1999; Rowthorn and Ramaswamy 1997). However, fixedeffects models with ARl use one degree of freedom for each country, causing a loss of precious information, and they are difficult (or impossible) to estimate and interpret when some countries have only two observations. This is not a problem for random-effects models with ARI. These models are generalized least squares estimators, which can accommodate unbalanced and unequally spaced panel data (Baltagi and Wu 1999). Taking into account the properties of these models and the objectives of this research, the results will be presented with all four techniques. Both historical and cross-national variation is important to this research, and the use of dummy variables is necessary to control for the effect of regional differences. Presenting all four techniques together will provide a more rigorous test of the three accounts of industrialization in developing countries, and allow different model specifications. The tables present results for tbese models.-'" Statistical significance is reported beginning at the .10 level with two-tailed tests. Tables present unstandardized coefficients and t-scores. Statistical significance, fit statistics and the Bayesian Information Criterion Prime are used for model selection. BIC selects the more parsimonious model unless model fit is substantially improved (Raftery 1995).

1164 Social Forces 68{3] Results Models 1 through 4 on Table 2 present analyses with control and globalization variables without FDI sector, while models 5 and 6 display the RE and RE-ARl analyses with the inclusion of region dummies (again without FDI sector). In analyses available upon request, each independent variable is added one at a time. The results were wholly consistent, so simply the combined models are presented here. In these models, FDI is measured as stock; and in the subsequent table FDI is measured as flow. All six models consistently show a very significant positive effect of GDP, while the square of GDP has a significant negative effect in the random-effects model without region dummies at the .1 level. This demonstrates that the level of economic development is strongly associated with the share of manufacturing employment, and suggests that the relationship between economic development and manufacturing employment in developing countries can be predicted by an inverse-U shaped curve." The insignificance of GDP square in fixed-effects and fixed-effects with ARl models can be attributed to the fact that only a few countries in the sample are in the advanced stages of industrialization and experiencing the peaking and downturn of manufacturing employment. Secondary school enrollment has a significant negative effect on manufacturing employment in thefixed-effectsmodel at the .05 level and in the random-effects model with region dummies at the .1 level, although it does not have any effect in other models. This provides suggestive evidence that as human capital increases, employment in manufacturing decreases. Urbanization has a positive effect in the random-effects and random-effects with ARl models, while it has no effect in the fixed-effects and fixed-effects with ARl models. This suggests that more urbanized countries have a larger portion of their labor force in manufacturing, while changes in urbanization within countries do not significantly affect manufacturing employment. Population growth has no effect in all models. Gross domestic investment has a significant positive impact infixed-effectswith ARl at the.O5 and .1 levels. This suggests that domestic investment enhances the industrialization of developing countries. Among the geographical regions, only Sub-Saharan Africa differed significantly. Even controlling for all variables, Sub-Saharan Africa has significantly less manufacturing employment compared to other regions. Other regions did not have any significant differences in either model. Among globalization variables, the results for the trade variables are noteworthy. Both exports and low-technology exports have a significant positive impact on manufacturing employment. Tliere is some variation in the size of the effects of these variables depending on the technique. The effect of low-technology exports is generally more pronounced than the size of exports. This suggests that integration into the global economy throtigh trade as exporters, particularly exporters of

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low-technology products has increased the level of manufacturing employment in developing countries. This provides support for globalization theories (e.g.. Wood 1994; Dicken 2003), which claim that integration into the global economy can lead to industrialization. Moreover, this effect remains unchanged when controls for regional differences are added in models 5 and 6, and when all cross-country differences are controlled for infixed-effectsmodels. This suggests that export-oriented industrialization was not merely an East Asian phenomenon. Last, but not least, raw material exports have no effect in all models. The industrialization of developing countries does not appear to be constrained by an emphasis on raw material exports. Next, inward FDI stock has a significant negative effect on the random-effects model at the .05 level and the random-effects with ARl model at the .1 level. This suggests that countries with higher levels of inward FDI stock tend to have less manufacturing employment. This provides support for dependency theorists. The results do not provide support for the export-oriented FDI thesis raised by some globalization scholars. Finally, FDI originating from developing countries has no effect on manufacturing employment in developing countries. This fails to provide support for concerns with deindustrialization in developing countries due to outward FDI. Models 7 through 10 present models with all four techniques with the inclusion of FDI in primary and secondary sectors. The effect of control variables is generally the same, while the effect of other globalization variables are less pronounced. FDI in the primary sector (mining and agriculture) has a significant negative effect on manufacturing employment at the . 1 level infixed-effectswith ARl models, while FDI in the secondary sector (manufacturing) has a significant positive impact at the .05 level in fixed-effects, random-effects and fixed-effects with ARl models, and at the .1 level in random-effects with ARl model. Because of the decline in degrees of freedom these results may not be comparable to the previous six models, but they do provide suggestive evidence that FDI in secondary sector helps the industrialization of developing countries, while FDI in the primary sector, which includes agriculture and mining, has a modest negative effect. These results provide some support for globalization theorists who see manufacturing foreign investment as a positive influence in developing countries; and some support for dependency theorists who see primary sector investment and dependence as constraining industrialization. Finally, BIG' prefers random-effects with ARl without region dummies and FDI sector (Model 4) over the other models.
Models with FDI Flow

Table 3 presents the models in which the FDI stock variables in Table 2 are replaced by FD! flow variables. The effect of GDP and other control variables do not change with the inclusion of FDI flow variables, except for gross domestic investment, which is now significant in all models. '" Among trade variables, the effect of total exports is less significant, while low-technology exports are still signifi-

1168 Social Forces m3] cant in most models (both still positive). Raw material exports again have no effect. There is also no change in the effect of geographic regions. Sub-Saharan Africa is again the only region with significantly different manufacturing employment. Inward FDI flows do not have any effect on manufacturing employment. Interestingly, and distinct from the analyses of stock in Table 2, FDI outflow has a significant negative effect at the .1 level in random-effects, and at the .05 level, in random-effects with ARl models without the inclusion of the FDI sector variables. This suggests that investment originating from developing countries may have a negative influence on manufacturing employment, but the evidence is not strong. Surprisingly, FDI How in primary and secondary sectors does not have any impact of manufacturing employment in developing countries. This does not provide support for eitiier globalization or dependency theories. BIC again prefers random effects with ARl without region dummies and FDI sector (Model 4) over the other models.

Discussion
The emergence and conditions of industrialization in developing countries is a very important and contested topic in social sciences. Many scholars think that industrialization in developing countries is unlikely because of factors such as constant political conflict and violence, dependence on natural resources in resource-rich countries, and exploitation by early-industrialized countries (e.g., Auty 2000; Collier et al. 2003; Wallerstein 1974, 1980). Other scholars view industrialization as possible only under certain conditions such as the existence of a past industrial heritage or the ability to implement selective controls on international trade and FDI (Amsden 2001). The increasing integration of the world economy during the most recent wave of economic globalization has added to the controversy. While many scholars such as Wood (1994), Gereffi (2005) and Dicken (2003) see increasing international trade and FDI as positive influences on industrialization in developing countries, many remain skeptical and argue that trade and FDI are either irrelevant or even harmfiil to industrialization and development of developing countries (Bornschier and Chase-Dunn 1985; Arrighi, Silver and Brewer 2003). This study addressed the debate by exploring the effect of the latest wave of economic globalization on manufacturing employment in developing countries from 1980 to 2003 with a comprehensive sample. This study assessed the evidence for three explanations: economic development/productivity, dependency/world systems, and economic globalization. In the past two and a half decades, developing countries have experienced significant increases in manufacturing employment. However, unlike early-industrialized countries, manufacturing employment never became the dominant form of employment. When manufacturing employment peaked in successful industrializers such as South Korea, its share of all employment was lower than the share of service sector employment.

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Despite enormous changes in the global economy, the relationship between economic development and manufacturing employment has some similarities CO eariy-industrialized countries. Although many developing countries are continuing to industrialize, some such as South Korea and Malaysia are actually deindustriidizing as they continue to economically develop. In the models, GDP has a highly significant effect in nearly all models while GDP square has a negative significant impact in some models. This indicates that manufacturing employment increases in earlier levels of economic development and starts to decline at higher levels of economic development. The models and the analysis of individual cases support the arguments made by Clark (1957[1940]), Rowthorn and Wells (1987), Rowthorn and Ramaswamy (1997) and Krugman and Lawrence (1994). This finding is important because it indicates that industrialization in developing countries can be partially understood by looking to the industrialization process in early-industrialized countries, and predictions can be made based on the experiences of these countries. However, the level of economic development does not explain all the variance in manufacturing employment in developing countries. Economic globalization was a salient influence on the share of manufacturing employment in developing countries from 1980 to 2003. The size of exports, measured by the ratio of all exports to GDP, and the proportion of low-technology exports among all exports has a strong positive effect on manufacturing employment in the models. The effect of globalization on manufacturing employment is mainly through international trade. Inward FDI stock has a negative impact on industrialization in some models, while FDI flow has no effect. FDI stock in secondary sector has a significant positive effect on industrialization in developing countries when added to the models, while FDI flows in this sector has no effect. These suggest that direct investment in developing countries by Foreign companies may be less important in the global reorganization of manufacturing than the trade between these companies and the companies from developing countries. Dicken (2003) and Kaplinsky (2000) explain that most of global manufacturing is facilitated through subcontracting, in which firms from rich countries transfer their manufacturing activities to firms in developing countries. Moreover, these companies do not necessarily "own" their subcontractors and regularly shift between different companies in different countries (Gereffi 2005). Finally, there is also not much evidence for deindustrialization in developing countries as a result of outward FDI from these countries. Overall, the analyses provide limited support for dependency and world-systems theories. Raw materials exports do not have a significant effect on manufacturing employment. FDI stock has a negative effect in some models while FDI flows have no effect. Thus, integration into the world economy does not appear to have an overwhelming negative effect on industrialization in developing countries. Nevertheless, there are important ways in which the sectoral composition of trade and FDI constrain the industrialization of developing countries.

1172 Socif Forces B{3]

One argument is about the quality of the manufacturing jobs created with integration into the contemporary global economy. For example, Mander and Goldsmith (2001) argue that export-oriented industries exploit the workers in developing countries and do not provide a living wage. The images of third-world sweatshops that attracted the attention of American university campuses in the late 1990s are still very real (Gereffi 2005). In fact, many scholars of globalization, (e.g., Gereffi 2001; Kapnsky 2000), cite the low cost of production in developing countries, originating from low labor compensation, and loose labor, tax and environmental regulations in these countries, among the main reasons behind the global reorganization of manufacturing and the global mobility of the capital. In this manner, Arrighi, Silver and Brewer (2003) argue that although the gap in industrialization between first- and third-world countries has diminished, the income gap still exists. However, some scholars argue that globalization might actually have beneficial effects on workers. For example, Neumayer and de Soysa (2006) show that countries more open to international trade have fewer labor rights violations, while FDI does not seem to have any impact, be it positive or negative.^' In addition, they argue that developing countries that have higher levels of trade openness and FDI stock have lower levels of child labor force participation (Neumayer and de Soysa 2005). Although significant, this debate is beyond the focus of this article, but warrants future research. Researchers can expand this debate to assess a broader question of the relationships between globalization, industrialization and well-being in developing countries. There are also other issues that the current study could not address. One important question emerges from the near absence of industrialization in some countries, especially in Sub-Saharan Africa. These countries and the almost complete absence of industrialization should be addressed separately in more detail. In addition, more research needs to be done as to the role of the service sector on economic development in developing countries. This and previous studies showed that the service sector, rather than manufacturing, became the dominant form of employment following the decline of agricultural employment in nearly all developing countries. Finally, it would be valuable to examine partner concentration in international trade and investment. As suggested by some dependency scholars, dependence on a single or a few trade and investment partners can have significant consequences for development and industrialization in developing countries. Overall, this study contributes to current debates on globalization, and the longstanding debate on industrialization in non-Western societies, and particularly, the effect of external factors in this process of industrialization. It shows that the globalization of the world economy has emerged as a significant influence on industrialization in developing countries in the past two and a half decades. This implies that a comprehensive understanding of contemporary economic and social structures in developing countries requires a thorough understanding of the latest wave of globalization. At the same time, globalization is not the most important

Globalization and Industriali2ation 1 1 7 3

factor, and domestic factors still shape industrialization and development. Finally, although economic globalization seems to result in spreading industrialization around the world, the question of possible exploitation of developing countries by rich countries still merits scholarly attention. Notes
1. Lall (2000) shows that from 1985 to 1998, the manufacturing exports of developing countries increased 12.3 percent on average annually. He also shows that developing country exports constituted 25 percent of all manufacturing exports in 1998, up from 16 percent in 1985. My calculations from the World Trade Analyser (Statistics Canada 2003) using Lalls (2000) classificacion shows that it was about 35 percent in 2003. I do nor mean to imply here that there is a consensus in social theory on the emergence of industrialization in developed countries. In fact, there have been serious disagreements and debate among scholars. For example, Mendels (1972) and Tilly (1983) argue that in continental Europe, unlike the factory-based industrialization in Britain, industrialization started in rural areas by the multiplication of small production units, which they label as proto-industrialization. Sewell ( 1986) and Perrot (1986) explain that in France, industrialization took place gradually with artisans playing an important role well Into the 20"'' century. Robinson and Briggs (1991) found that 19''' century industrialization in Indianapolis, Indiana emerged from artisan production. However, whatever path they followed, in all early-industrialized countries the agriculture-based economies gave way to the industrial economies in which manufacturing became the main source of employment, except for the Unite States in which manutactuting and service employment went hand-in-hand during Industrialization (Carter 1997). Then, in time, service sector employment increased and took over manufacturing to become the main source of employment (Clark 1957[1940l). Rowthorn and Wells (1987), and Rovnhorn and Ramaswamy (1997) warn that analyzing deindustrialization in terms of the share of manufacturing in national income can be misleading. They offer the concept of "positive industrialization" where the decline in tnanufacturing occurs when productivity grows at a rate higher than the growth in output. liiere is a rich literature on the internal factors leading to economic development and high productivity in developing countries. Most prominent are the studies of institutional structures. Some scholars argued that central planning, control of workers and educational expansion by the developmental states led to increasing productivity and economic growth is some countries, (e.g., Evans 1995; Wade 1990). Some argued that culture played a crucial role in the successful industrialization and development of some developing countries by contributing to labor productivity and discipline (sec Gereffi and Fonda 1992). The role of colonial past was also put under scrutiny by development scholars (e.g., Kohli 2004). Although very important, this literature is beyond the scope of the present study, which concentrates on the effect of economic globalization. See Gerefi (1983) and Evans (1979) for comprehensive reviews of dependency and world systems schools. Wallerstein also theorized a semi-periphery which engages in limited industrial production.

2.

3.

4.

5. 6.

1174 Social Forces B8{3) 7. 8. Nevertheless, Firebaugh {1996, 1992), Szymanksi (1983), and de Soysa and Oneal (1999) contest the claims of the dependency school. Cardoso and Faletto (1979:xxii) state that "...peripheral indLtstrialization is based on products which in the center are mass consumed, but which are typically luxurious consumption in dependent societies. Industrialization in dependent economies enhances income concentration as it increases sharp differences in productivity without generalizing this trend to the whole of the economy." Then they argue that "The type of technology adopted by the most modern sectors used little labor and thus increased what seemed to be an overt incapacity to solve occupational demand through industrialization. The creation of new industrial sectors dismantled handicraft ones, destroying more iobs than creating new ones."(Cardoso and Faletto 1979: 4-5) Although Cardoso and Faletto's views do not fully represent dependency and world system scholars after them, their argument indicates a possible negative influence of dependency on manufacturing employment. Skeptics of globalization reject the idea that the world economy in late 20''' century and afterwards is different from earlier periods, specifically the late 19''' century. Therefore, they argue against building any theoretical and empirical endeavor on this assumption. Hirst and Thompson (1996) claim that developments labeled as globalization are not historically unprecedented. They argue that integration and interdependenceamongcountries was higher in the late 19'''century with more tradeto-national-output ratios and more open economies. Bairoch (1996) claims that the trend in the volume of trade and FDI flows do not back the idea of globalization. Obstfeld and Taylor (2003) argue that foreign capital is now discouraged more than it was a century ago. Following Robertson (1992), Held and colleagues (1999) and Therborn (2000), I perceive globalization as a long historical process, accepting the feet that the integration of the world economy started before the late 20''' century but maintaining the idea that the current era has distinctive properties. Baldwin and Martin (1999) argue that trade/GDP, foreign direct investment/GDP and liberalism are quite similar between two periods, but the current period is different because of the dramatic reduction in transportation and communication costs. Held and colleagues (1999) think that the current era is distinct with its extensiveness, real time and round the clock economic transactions. Dicken (2003) says that unlike the shallow integration o the earlier periods, the current global economy (post-WWlI) is characterized by ic fimctional integration of economic activities.

9.

10. HO basically contends that the relative abundance of factors of production (land, labor and capital) creates the comparative advantage of a country. An extension of this model is the Heckscher-Ohlin-Samuelson Iheorem, which theorizes factor price equalization as a result of trade between two countries (Rodrik 1997). 11. Wood (1995). however, stresses that the developing countries need to provide at least basic levels of education to their labor forces in order to utilize their comparative advantage. 12. These countries could now be classified as developed or high-income countries. For example, Singapore now has a relatively high GDP per capita. But, my contention is that such countries should be included in a sampie of developing countries in 1980. These countries fit the developing country "criteria" in 1980 (see Note 14). Any sample of developing countries should include both the persistently poor countries and the few that were considered poor but have succeeded in improving their status significantly. Also, it would be interesting to see if FDI outflow caused any contraction in manufacturing employment in these countries.

Globalization and Industrialization 1175 13. Developed countries are not Includeci in the sample because the changes in these countries are well documented. 14. Argentina had a GDP per capita of more than $5,000 in 1980, but that figure fell in following years. Though Singapore rose to a very high level of economic development at [he beginning of 1980, its GDP per capita was below S5,000. Hence, it is essential to inclLide in any sample the countries that were able to pull themselves out of the developing country category. 7b my knowledge, there is not a standard definition of "developing countries." I used $5,000 dollars GDP per capita assuming that countries over this benchmark had achieved significant economic development. The countries with populations of less than 500,000 were not included in the sample because they may not be comparable as units of analysis. 15. The countries in the sample are Algeria, Angola, Argentina, Bangladesh, Benin, Bolivia, Brazil, Burkina Faso, Cameroon, Central African Republic, Chad, Chile, Colombia, Congo Democratic Republic, Congo Republic, Costa Rica, Cote d'lvorie, Dominican Republic, Ecuador, Egypt, El Salvador, Fiji, Gabon, Gambia, Ghana, Guatemala, Honduras, India, Indonesia, Iran, Jamaica, Kenya, Madagascar, Malaysia, Mali, Mauritania, Mauritius, Mexico, Mozambique, Myanmar, Nepal, Nicaragua, Pakistan, Panama, Papua New Guinea, Paraguay, Peru, Philippines, Rwanda, Senegal, Sierra Leone, Singapore, South Korea, Sri Lanka, Sudan, Thailand, Togo, Trinidad and Tobago, Turkey, Uganda, Uruguay, Venezuela, Yemen and Zambia. 16. Countries that are still governed by communist parties, China and Vietnam, are also treated as ex-communist countries. The results and conclusions are robust if China and Vietnam are excluded from the ex-communist category and included in the sample. 17. The countries with available data for each year change because of missing data. When I adjust this for countries with available data for all years, the mean is 19.8 percent in 1980 and 23 percent in 2003. 18. 1 ran the models both with GDP PPP per capita and GDP per capita (World Bank 2007) and the results were basically identical. Although PPP is not an ideal measure, it may have some reliability advantage for cross-country comparisons because it takes into account the differences in cost of living. 19. One might argue that the age structure instead of population growth may be more important here. The results were robust when I substituted population growth with population under age 15, between ages 15 and 65, and the ratio of population under 15 to population between 15 and 65. 20. Enrollment race is calculated by the World Bank (2007) as the ratio of all the students in secondary schools, regardless of age, to the total number of people at secondary school age. 21. I also used the portion of labor force with secondary education as provided by the World Bank (2007) to measure education. However, because of missing data the number of observations declined to 57 and the number of countries included in the analysis declined to 31. 22. I also considered net migracin as a measure of labor globalization. However, this variable seems prone to simultaneity bias where manufacturing employment drives migration. 23. The Lall (2000) classification is composed of five groups ranging from primary products (PP), resource-based products (RB) and low-technology products (LT) to

1176 Social Forces 8B{3] medium-technology (MT) and high-technology (HT) products. The trade data is classified into Lalls (2000) groups at the three-digit level of Standard International Trade Classification (SITC) using UN international trade data through World Trade Analyzer (WTA) (Statistics Canada 2003). UN's COMTRADE Database is also used to supplement WTA when necessary (United Nations 2005). 24. In analyses available upon request, I also included raw material exports into the models without subtracting oil and gas exports. The results were very similar. 25. Foreign direct investment is measured as the ownership of 10 or more percent of an economic establishment by a foreign entity (UNCTAD 2005). 26. By contrast, Firehaugh (1992) critiques the conclusions of dependency scholars regarding FDI. It Is important to emphasize that Firebaugh's critique should not necessarily be applied to manufacturing employment. Because growth and GDP are not dependent variables here (and are controlled for), the debate over denominator effects should be less of a concern. 27. Thirty-one countries in the sample have an outward FDI stock larger than 1 percent oftheirGDPin the latest year with available data, while 11 countries have more than 5 percent. ' 28. The results of these analyses can be found at http://www.uncw.edu/soccrj7abuutfaculty-kaya.htm!. In these models, I also present the variance inflation factor values. The VIF values range from 1.373 to 4.425 with an average of 2.334. These suggest that there is not a significant collinearity problem among the independent variables. 29. Another issue is the possible existence of endonegeity and simultaneity among the variables, which is always a concern with this kind of research. Although, it is not possible to fully address these concerns, a few things can be said. First, I utilize several statistical techniques to estimate the models. In particular, FE models (and FEARl models) are considered a more stringent approach against reverse endogeneity (Winship and Morgan 1999). As for the relationship between economic globalization variables and industrialization, there is enough evidence in the literature to suspect that economic globalization (FDI and trade) may precede and affect the level of manufacturing employment (e.g.. Wood 1995; Brady and Denniston 2006; Villareal and Yu 2007) rather than the opposite. 30. I also ran OLS with Panel Corrected Standard Error models as suggested by Beck and Katz (1995). The results of the PCSE models are generally similar to the FE and RE models. However, the unbalanced nature of my data constitutes a problem for running PCSE models. Because of missing data, many countries in the analyses have data for a few of the six time points; and there is not a time point common to all countries. In addition. Beck and Katz (1995) warn against using their model with less than 10 observations. 31. If I only run the linear term, the model fit is significantly lower and theeffect of GDP, indicated by standardized coefficient and statistical significance, is less pronounced. 32. This does not change when stock and flows are included in the model. 33. However, in a recent study, Martin and Brady (2007) found no relationship between unionization and globalization.

Globalization and Industrialization 1 1 7 7

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1178 Social Forces 8B{3)

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