Putting it to Work in Developing Countries - Nathan Associates

Figure 4-5
Selected Manufacturing Industries: Change in Developing
Countries' Share of Global Stock of Inward FDI, 1990-2004
Percentage point
25
20
22
15
10
5
0
-5
-10
-15
-20
1
-10
-4
-3
-17
-1 -1
-13
-2
5
-2
-5
Food, beverages,
and tobacco
Textiles, clothing and
leather
Wood and
wood products
Publishing, printing,
recorded media reproduction
Coke, petroleum products,
and nuclear fuel
Chemicals and
chemical products
Rubber and
plastic products
Non-metallic
mineral products
Metal and metal
products
Machinery and
equipment
Electrical and
electronic equipment
Precision
instruments
Motor vehicles/ other
transport equipment
Note: Includes all countries classified as “developing” by UNCTAD. UNCTAD classifies some countries as developing
that the World Bank considers “high income,” such as Singapore and South Korea, and classifies some as developed
that the World Bank considers “low and middle income,” such as Estonia, the Czech Republic, and Hungary. Data for
the countries in UNCTAD’s “South-East Europe and the Commonwealth of Independent States” category are
included in the developing country totals for 2004, but data for these countries are not available by sector and
industry for 1990.
SOURCE: Nathan Associates, based on UNCTAD, World Investment Report 2006, Annex Table A.1.2.
in FDI inward stock in publishing, printing,
and reproduction of recorded media.
In such industries, production is increasingly
technology-intensive, with capital and knowledge
replacing labor. In a modern automobile
plant, only a few workers monitor a highly automated
production process while others are
engaged in purchasing, inventory, logistics, and
finance. In this kind of manufacturing, comparative
advantage cannot be based on labor cost
alone, but must build on other factors: worker
skill, worker health, transport costs, logistics
efficiency, design, marketing, inventory
management. Coupled with the disaggregation
of value chains, the consequence is that many
manufacturing activities have begun to look like
services, reinforcing the shift to services.
Accordingly, the appeal of low-cost labor in
developing countries is diminishing.
IMPLICATIONS FOR THE “LADDER EFFECT”
Changes in manufacturing have two implications
for developing countries. First, the “ladder
effect” for channeling FDI flows will continue
to operate, but more rapidly and perhaps with
more rungs at the top than the bottom. As
countries cost themselves out of simpler,
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