ABSTRACT
This chapter explores in some detail the dynamics of domestic manufacturing diversification for "whole products." Industrialization entails significant interlocked changes in the composition of domestic production. Production orientation and trade orientation are two sides of the same coin. One paramount concern is whether there is a natural sequence of deepening of industrial production and trade in the course of industrial development. Import substitution, market-induced or policy-induced, is the natural way to initiate industrial development. Economic theory suggests that transitions between phases of industrial development involve changes in relative sectoral productivity and output cost, trade orientation, and the mixes of output and employment. Product cycle model is a theory of the development of technological and managerial capability for late-mover firms in developed countries as well as homegrown firms in late industrializing countries.
