Job market paper

Demographic Origins of Premature Deindustrialization

Many developing economies today experience limited industrialization and rapid growth in low-skill services. I show how workforce aging gives rise to this pattern of premature deindustrialization and slower economic growth. First, I document a new fact: within birth cohorts, the probability that a worker is employed in manufacturing declines sharply with age. I trace this pattern to life-cycle changes in productive abilities. Manufacturing relies more on early-peaking abilities such as physical strength and reasoning. Services rely on accumulated knowledge and interpersonal skills that improve throughout the working life. I then develop a quantitative open-economy model of structural transformation, where workers with heterogeneous abilities sort across sectors over the life cycle. I calibrate the model using five decades of Indonesian data. Younger demographics alone make the calibrated economy industrialize further and grow faster. Manufacturing’s employment share peaks 4.8 percentage points higher under the younger path of an early industrializer than under the older path of a rapidly aging developing economy. This greater industrialization, supported by export opportunities, helps generate 20 percentage points more cumulative growth in real output per worker.

For further research, please visit the candidate's personal webpage.