Manufacturing Fetishism: The Neo-Mercantilist Preoccupation with Protecting Manufacturing

Abstract

Two common views are that a country cannot develop without a strong manufacturing base and that trade restrictions are essential to facilitate the development of that strong manufacturing base and thus spur economic growth. We ask: • Does a strong manufacturing share of GDP facilitate economic growth? • Do trade restrictions ensure the development of a strong manufacturing base? • How can governance affect manufacturing share? • And are the relationships we find robust across regions? We find the manufacturing share is not significantly correlated with a higher standard of living. Nor is it related significantly and consistently to economic growth. We also find that trade restrictions both at home and abroad shrink the manufacturing base and smother economic growth. A better way than protectionism and subsidies specific to industry to enhance economic growth is to improve governance effectiveness and the quality of regulation.