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A situation in which an economy begins producing more services than goods. An analyst may say that deindustrialization is occurring when decreases in manufacturing are accompanied by increases in consulting companies. This can be beneficial to some sectors; indeed, some investors look for evidence of deindustrialization to know what industries are likely to be profitable. However, deindustrialization can be detrimental to some workers and regions. For example, as the United States has deindustrialized, the city of Detroit, which is home to many automakers, has lost approximately half of its population, and consistently maintains a high unemployment rate relative to the rest of the country.


A shift in an economy from producing goods to producing services. Such a shift is most likely to occur in mature economies such as that of the United States. This shift has considerable impact on investors' view of the attractiveness of various industries.
Deindustrializationclick for a larger image
Fig. 38 Deindustrialization. The distribution of gross national product shows how the industrial sector in advanced economies grows more slowly than the service sector. The figures for industry include those for manufacturing. Source: World Development Report, World Bank, 2004.


a sustained fall in the proportion of national output accounted for by the industrial and manufacturing sectors of the economy, a process that is often accompanied by a decline in the number of people employed in industry (compare INDUSTRIALIZATION).

There is a well-established trend in advanced economies for the industrial sector to grow more slowly than the service sector, as shown in Fig. 38. For the UK, the share of industry in GDP fell from 43% in 1960 to 29% in 2002, while the share of services increased from 54% to 70%. Over the same period, employment in industry in the UK fell from 11.8 million in 1960 to 3.7 million in 2003.

Changes in sector shares may simply reflect changes in the pattern of final demand for goods and services over time, and as such may be considered a ‘natural’ development associated with a maturing economy. On the other hand, deindustrialization that stems from supply-side deficiencies (high costs, an overvalued exchange rate, lack of investment and innovation) which put a country at a competitive disadvantage in international trade (see IMPORT PENETRATION) is a more serious matter. In this case, deindustrialization often brings with it a fall in national output, rising unemployment and balance of payments difficulties.

The extent of deindustrialization in the UK was even more marked in the early 1980s because of Britain's artificially high exchange rate, bolstered by UK oil exports, which caused Britain to lose overseas markets.


References in periodicals archive ?
(8) This story resembles the model in Krugman and Venables (1995), in which expanded international trade deindustrializes some countries and leads to a rise in income inequality between nations.
The new southern globalizers promoted unregulated markets, pushed policies that helped deindustrialize older industries, and at the same time, provided lucrative incentives in recruiting Asian and European companies to southern states.
McKenzie shows that the United States did not deindustrialize during the 1980s.
The place where America had industrialized first became the first place in America to deindustrialize, and nowhere more completely than New Haven.
In successive chapters, he examines the response of workers to the impact of closures and displacement, the aesthetics of the new post-industrial order, and the underlying logic and ambition of those firms that led the drive to "deindustrialize." This is largely preliminary, however, to the book's final two chapters, which analyze, respectively, the efforts of American and Canadian workers and their trade unions to resist and fight back.
Well, perhaps one does feel a sneaky bit of respect for the Serbian militiamen, who have managed to take the somewhat forbidding institution of genocide and deindustrialize it, bringing it down to human scale and potentially within reach of every neighborhood council and block committee.
That is, as an economy deindustrializes, income inequality may increase as the wages paid to manufacturing workers in low-tech, pollution-intensive industries fall.