Deindustrialization and Poverty in Developing Countries: Examining Economic Shifts and Policy Responses (1990-2022)

Abstract

This research analyzes the decoupling of poverty from deindustrialization in 44 underdeveloped nations between the years of 1990 and 2018. Using a fixed-effects approach, it examines how the changing structure of the economy from industry to services-age effect poverty levels. It is shown that the process of deindustrialization contributes significantly further to the deepening of poverty in developing economies. To be precise, a 1 percent change in the share of services in relation to the share of manufacturing means an increase of 0.417 percent in the measures of poverty. Remarkably, even after controlling for other factors, this effect remains significant. De-industrialization is a major barrier to economic growth, reduces job standards, and eradicates conventional manufacturing, all of which contribute to poverty, according to an examination of the underlying mechanisms. The report also highlights the issue of early deindustrialization as a contributing cause to poverty. Low agricultural output and workforce exodus are the primary drivers of early deindustrialization. Thus, the report offers policy recommendations for these countries aimed at combating the negative effects of shrinking industrial sectors. For this case it has been proposed that improving agricultural production and managing labor migration could help prevent a further deepening of poverty as a result of deindustrialization. This study stresses that emerging economies are required to design appropriate economic policies to address the specific challenges posed by deindustrialization.