Manufacturing is complex and its production processes increase the demand for raw materials, energy, construction, and services from a broad array of supplying industries.  Additionally, many functions previously completed within manufacturing companies—from back-office operations and accounting to some types of logistics—are now contracted to other service providers and hence not counted as part of the manufacturing sector.

A measure of the breadth of the supply chain is the backward linkage in the input-output structure of the economy.  For an industry with a larger backward linkage, growth in its output induces more production—both directly and indirectly—from other sectors.  A mapping of relationships in the economy reveals that manufacturing has the highest backward linkage among the major sectors. As the demand for manufacturing grows, it in turn spurs the creation of jobs, investments, and innovations elsewhere.

The backward linkage (or multiplier effect) shows how much additional output is generated by a dollar’s worth of final demand for each industry.  Every dollar in final sales of manufactured products supports $1.33 in output from other sectors—this is the largest multiplier of any sector.  Manufacturing plants, therefore, have a powerful and positive impact on economic development.

© 2014 Manufacturing Institute
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