Explaining deindustrialisation from a vertical perspective: industrial linkages, producer services, and international trade

This paper aims to provide new findings on the extent of the deindustrialisation process by adopting a new subsystem approach. In particular, we have extended the subsystem approach in a multi-country setting using world input-output tables. An empirical investigation is carried out on the four largest eurozone countries based on the World Input-Output Database (WIOD). The results show the substantial fall in labour intensity of production, rather than a real decline in manufacturing. We establish a series of facts concerning deindustrialisation. First, international fragmentation of inter-industry linkages has rapidly increased. Second, a pervasive process of falling employment has been influenced by decline in domestic demand. Third, the direction of this change is driven by the technological and innovative intensity of subsystems. Fourth, we show increasing specialisation in producer services within the manufacturing subsystem.