Letter IEDI n. 1046–Industry and Sustainability in the Post-Pandemic Era
The negative effects of the COVID-19 pandemic on the well-being of populations and the dynamism of economies in numerous countries are making the achievement of the Sustainable Development Goals (SDGs), established within the scope of the United Nations in 2015, increasingly crucial.
These objectives were aimed at guiding national policies towards meeting, by 2030, targets in areas such as poverty eradication, health, education, water and sanitation, sustainable consumption patterns, among others.
Recently, UNIDO released a document entitled "Industrialization as the driver of sustained prosperity," which addresses the interconnections between industrialization and the attainment of socio-economic and environmental goals related to the objectives of the United Nations. Today's Letter IEDI brings the main UNIDO arguments and conclusions presented in the document.
According to the report, the impact of industrialization on socioeconomic development is mainly due to its role as an “engine of economic growth.” There are also more direct effects, in particular, derived from the relationship between industry and technological progress.
The links between industrialization and the SDGs pointed out by UNIDO can be summarized in the following points:
Industry and productivity. There is empirical evidence that labor productivity in manufacturing is higher than in the rest of the economy. In upper middle income countries, the group in which Brazil finds itself, the productivity differential between the manufacturing sector and the others is 14%, reaching 55% in low income nations, according to UNIDO.
As a result, countries with lower income levels tend to benefit from the industrialization process via a “structural change bonus,” that is, through a continuous increase in the GDP share of manufacturing. Historically, this movement occurred with the transfer of jobs from agriculture to the industry.
Industry, health and wellness. UNIDO found a negative correlation between the participation of industry and services in GDP and the infant mortality rate, for example. The opposite occurs with agriculture. The link between the industry and health and well-being involves technological progress, which has manufacturing as its main generating nucleus, and the increase in per capita income, which allows the development of services, including health-associated ones.
Industry and employment. Evidence found by UNIDO indicates that the greater the share of manufacturing in a country's GDP, the smaller the proportion of young people who do not work and do not study. That is, it favors the professional insertion of the new generations.
In addition, UNIDO finds that, although there is great potential for labor market formalization, given that the work relationship in the industry is mostly formal, there is modest growth in manufacturing employment in developing countries, which weakens the positive correlation. One can think that this is due, among other factors, to the premature deindustrialization that affects many of these countries, and also to the advance of automation.
Quality industry and education. For UNIDO, there is a positive relationship between manufacturing intensity and education and training, since the industry has higher requirements for labor qualification. However, there is no clear statistical evidence between the GDP share of manufacturing and increases in education and training. This is because educational policies play a fundamental role in the relationship, according to UNIDO.
Industry and poverty eradication. According to UNIDO's analysis, the more economic growth is driven by the industrial sector, the faster the reduction of poverty in a country. That is, the impact of manufacturing value added growth on the living conditions of the population is positive and significant. The important thing, however, is for this manufacturing-driven expansion to be intensive in productivity.
Industry and social inequality. The study shows that there is a positive relationship between a rise in the share of manufacturing and an increase in consumption by the poorest in the population and also between manufacturing and the reduction of income inequalities, since the sector offers relatively better paid jobs to those with low and medium-level qualification.
Industry and environment. UNIDO argues that manufacturing development reduces energy intensity and consumption of raw materials, generating a direct positive effect of industrialization on accessible and clean energy and on responsible consumption and production. For this reason, there is evidence, for example, that an increase in the GDP share of manufacturing is negatively related to the emission of CO2 per unit of value added in manufacturing.
Thus, the expansion of the manufacturing sector does not need to happen at the cost of higher carbon dioxide emissions in developing countries, because the intensity of emissions normally decreases as countries industrialize. This shows a disconnect between economic development and the increase in CO2 emissions.