FRIDAY GRAPH: MANUFACTURING SHARE OF GDP

Another graph courtesy of University of Michigan professor of economics and finance Mark Perry and his blog Carpe Diem.

The chart above shows manufacturing output as a share of GDP for both the world and the United States using United Nations data for GDP and its components at current prices in US dollars from 1970 to 2009.

Perry notes:

We hear all the time from Donald Trump and others about the “decline of U.S. manufacturing,” about how nothing is made here any more, and how everything that used to be made here is now made in China …  In reality, the decline in U.S. manufacturing as a share of GDP is really a global phenomenon as the entire world becomes increasingly a services-intensive economy.

As a share of GDP, manufacturing has declined in most countries since the 1970s.  A few examples: Australia’s manufacturing/GDP ratio went from 21.3% in 1970 to  9% in 2009, Brazil’s ratio went from 24.6% to 13.3%, Canada’s from 21.7% to 11.3%, Germany’s from 35% to 19%, and Japan’s from 35% to 20% …

The standard of living around the world today, along with global wealth and prosperity, are all much, much higher today with manufacturing representing 16-17% of total world output compared to 1970, when it was almost twice as high at 26.7%.  And for that progress, we should applaud, not complain.

The same trend has occurred in agriculture in most countries over the last 100 years – there has been a dramatic decline in agricultural employment.  Would we really be better off if more people worked on farms?

Note also that the decline in the manufacturing share of GDP is to some extent a statistical artifact.  Many functions, such as accounting and IT, that were once performed in-house by manufacturing firms have been outsourced to service sector providers.

Using Mark Perry’s numbers, the share of manufacturing in GDP for New Zealand has fallen from 21.6% in 1970 to 14.9% in 2009.  Manufacturing is still a major sector in the New Zealand economy and bigger as a share of GDP than in the United States and Australia.

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