The industrialization process in several countries of East and Southeast Asia formed the backbone of their economic growth. The industrialization, which was primarily driven by manufacturing activities, provided a major force to the engine of growth as it complemented their accumulation of human capital and investments in infrastructure.
The level of industrialization taking place within a country can be determined by the share of industry value added relative to the share of value addition in other sectors, namely services and agriculture, and the share of employment in industry relative to the share of employment in the other sectors. The industry sector includes manufacturing, mining, construction and public utilities. Between 1990 and 2014, East Asia and Pacific (excluding high income countries) had averaged above 40 percent in terms of the share of industry value added as a percentage of GDP. Comparatively, South Asia averaged less than 30 percent even at its peak. The average share of industry in total employment in East Asia and Pacific has remained greater than the average for the South Asian region. However, the latter is converging as India experienced a high growth rate for this indicator in the last two decades.
The industry value added per worker at constant 2010 US dollars in 2019 was about 3.6 times greater for East Asia and Pacific relative to the average for South Asia. This is consistent with the income gap between the two regions in 2019 measured by the GDP per capita in constant 2010 US dollars. With rising employment levels in industry, the South Asian countries and in particular Pakistan must address issues related to capacity that limits its ability to increase overall value addition.
Considering a sub-regional analysis for the South Asian region, the value addition in the industry sector as a percentage of GDP is the lowest for Pakistan, at 18.3 percent. The value reported for Pakistan has been the lowest in the region since 2000. One the other hand, with quarter of the total employment in Pakistan and India employed in the industry sector, the share for both countries has been higher than that in Bangladesh. The implication is that Pakistan reports much lower value addition per worker in the industry sector relative to the other South Asian countries, suggesting poorer productivity rates relative to its regional counterparts.
Therefore, although Pakistan employs a similar proportion of the number of workers in the industry to total number of workers in the country as India, the share of total value addition in the industry sector is much lower. This share has been declining over time. On the other hand, the share of employment in industry is increasing. In essence, productivity levels in the industry sector in Pakistan is likely to be diminishing. This is exacerbated once the lower level of GDP per capita reported for Pakistan is factored in. Such is unlikely for India and Bangladesh as their industry sector is gaining prominence in terms of value addition, particularly as they reported higher economic growth rates in recent years.
In essence, Pakistani policymakers must not only ensure building productive capacity in the industry sector to accommodate new workers, but also ensure that it does not continue to lag behind the other major economies in the South Asian region
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