Why manufacturing is more important than you realise

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Ever wondered how important manufacturing is to the economy? This recent report from WEF says that

For every $1 of manufacturing value add in the US, $1.40 of value is added in other sectors.

It's called the multiplier effect

In addition to creating value through output directly, manufacturing induces production and value creation in other sectors of the economy. For example, the development of a new manufactured product could lead to the development of a service associated with the product leading to job creation. Higher demand for manufactured goods could also higher investment and greater innovation in other sectors of the economy as they seek to capitalise on demand opportunities.

Of all sectors, manufacturing had the highest multiplier and so the biggest positive effect on production and value-creation in other sectors.

It should therefore not be surprising that manufacturing has been reducing as a share of the global economy. The multiplier effect means that other sectors in the economy will be growing if manufacturing grows. If manufacturers are actively improving efficiency to lower prices of manufactured goods at the same time, then manufacturing should be declining as a proportion of the economy.

So…what has been happening with manufacturing output in the UK?… given this, it is vital that the conditions for continued and more sustained growth in manufacturing are right.

Author

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