Classification of manufacturing sectors by technological intensity (ISIC Revision 4)

Learning center / Sun, 01/29/2023 - 14:23

Introduction

The classification of industries by technological intensity (technology classification) is a widely applied method for grouping industries for the purpose of policy-relevant analysis. The Industrial Statistics Guidelines (UNIDO, 2010) present several other groupings based on resource use, energy intensity and production of ICT goods. Technology-based classification has also been developed on the basis of the computation of the Competitive Industrial Performance (CIP) index. More recently, the share of medium-high and high-technology industries has been recognized as one of the SDG indictors related to industrialization. The classification used so far is based on Revision 3 of the International Standard Industrial Classification of all economic activities (ISIC). In 2006, the UN Statistical Commission endorsed the fourth revision of ISIC, responding to the need for a new structure of economic activities that is more detailed than the previous version and identifies many new industries. Subsequently, the national statistical offices (NSOs) replaced Revision 3 classification with Revision 4. The latest revision of ISIC provides a comprehensive framework within which economic data can be collected, compiled and disseminated in a format that is designed for purposes of detailed economic analysis and policymaking.

Revision 4 of ISIC has been progressively implemented in UNIDO Statistics, since a number of countries have published their business structure statistics in Revision 4. Similarly, Revision 4 has been applied to online data products and databases disseminated in electronic media. In response to the increasing use of Revision 4, other economic classifications that are derived from ISIC, especially the technology classification, have to be updated.

Basis of classification

Technology classification is based on research and development (R&D) expenditure incurred in the production of manufactured goods. Manufacturing industries with a higher R&D intensity are considered high-technology industries. R&D intensity refers to the ratio of R&D expenditure to an output measure, usually gross value added. Data for R&D intensity are presented in a report (Galindo-Rueda and Verger, 2016) published by the OECD in 2016, which also proposes a taxonomy for industry groups with different ranges of R&D expenditure relative to their gross value added.

The robustness of the taxonomy over time cannot be completely verified as it is not possible to create a balanced sample across years. It should be brought to the users’ attention that an industry’s reliance on technology can be much more significant than implied by the country’s R&D performance. However, results obtained from the ranking of industries based on recently collected survey data have indicated that a new technology classification can be constructed around the OECD approach, which, among other things, ensures data comparability over time.

Taxonomy

UNIDO maintains the earlier taxonomy of industry groups by technologic intensity, namely:

Medium-high and high technology (MHT industries)
Medium technology
Low technology

This taxonomy differs slightly from the OECD classification which entails four categories with a separate group for high and medium-high technology industries. Traditionally, UNIDO has made use of three groups for two main reasons. First, the OECD grouping is primarily applicable to highly industrialized economies. Some of the high-technology manufacturing industries, such as production of air and spacecraft machinery, are rare in developing economies. Subsequently, statistical reports of many countries will contain several blank cells. Better results can be obtained from aggregated figures combining MHT industries into a single group. Secondly, data for the above three categories can be readily compiled with few exceptions from the data available at the 2-digit level. Data at 3-digit level, especially for Revision 4, are not available for many developing countries.

MHT is an established concept of UNIDO’s statistical publications, such as the CIP report, IDR and more recently, SDG Indicator 9.b.

Recommendations and implementation

Users of UNIDO statistical products and researchers should take note of this change and apply the recommended classification in their research work, whenever applicable. UNIDO will progressively implement the revised classification in its statistical and research products.

References

Galindo-Rueda, F. and F. Verger (2016) OECD Taxonomy of Economic Activities Based on R&D Intensity, OECD Science, Technology and Industry Working Papers, 2016/04, OECD Publishing, Paris. http://dx.doi.org/10.1787/5jlv73sqqp8r-en

UNIDO (2010) Industrial Statistics: Guidelines and Methodology, Vienna, Austria. https://www.unido.org/sites/default/files/2012-07/Industrial%20Statistics%20-%20Guidelines%20and%20Methdology_0.pdf

Table 1: Manufacturing industries by technological intensity

Medium-high and high technology

Division 20 Chemicals and chemical products

Division 21 Pharmaceuticals

Group 252 Weapons and ammunition

Division 26 Computer, electronic and optical products

Division 27 Electrical equipment

Division 28 Machinery and equipment n.e.c.

Division 29 Motor vehicles, trailers and semi-trailers

Division 30 (less 301) Other transport equipment except ships and boats

Group 325 Medical and dental instruments

Medium technology

Division 22 Rubber and plastics products

Division 23 Other non-metallic mineral products

Division 24 Basic metals

Group 301 Ships and boats

Division 32 (less 325) Other manufacturing except medical and dental instruments

Division 33 Repair and installation of machinery and equipment

Low technology

Division 10 Food products

Division 11 Beverages

Division 12 Tobacco products

Division 13 Textiles

Division 14 Wearing apparel

Division 15 Leather and related products

Division 16 Wood and products of wood and cork

Division 17 Paper and paper products

Division 18 Printing and reproduction of recorded media

Division 19 Coke and refined petroleum products

Division 25 (less 252) Fabricated metal products except weapons and ammunition

Division 31 Furniture

Table 2: Manufacturing industries at the 2-digit level of ISIC Rev 4

by technological intensity