Deindustrialization

Deindustrialization is a process in which the industrial sector, particularly manufacturing, becomes smaller relative to the overall economy. It is commonly described as a decline in manufacturing’s share of gross domestic product (GDP) and employment, though total output may not always fall. The term refers to structural change, not a short-term cyclical downturn.

Causes of deindustrialization are varied. Structural shifts toward services, globalization and offshoring, and rising productivity in manufacturing reduce employment and relative size even as output can remain stable or grow. Technological change and automation raise capital intensity, reducing labor demand. Economic policy, exchange rates, and regional incentives can influence where manufacturing activities locate. Deindustrialization can involve both a decline in inherited heavy industry and a broader, long-run move toward service-based economies.

Regional patterns differ. Many advanced economies experienced significant manufacturing declines from the late 20th century onward, accompanied by growth in services and high-value-added sectors. Some regions have attempted to counteract this trend with targeted industrial policies, innovation ecosystems, and reindustrialization efforts. In other parts of the world, manufacturing expansion occurred during rapid development, though in some cases newer cycles of automation and globalization have tempered gains.

Indicators used to study deindustrialization include the manufacturing share of GDP, manufacturing employment, and manufacturing output, along with measures of capital intensity and productivity in the sector. The consequences can include regional economic disparities, shifts in labor markets, and changes in urban structure, prompting policy responses focused on retraining, infrastructure, and diversification alongside support for competitive manufacturing.