ABSTRACT
It is widely recognized that sustained economic growth involves structural changes away from agriculture, toward industry and modern service activities. 1 Industrial production is usually characterized by higher levels of labor productivity and the terms of trade for manufactured goods are more advantageous and less volatile than for raw materials. Moreover, the process of industrialization entails a rather intensive process of technology adoption and diffusion, including the relevant knowledge, part of which spills over to non-industrial sectors. Finally, higher levels of labor productivity and income enhance domestic demand for consumer goods and fine-grained financial services. Thus, industrialization functions as a flywheel to economic development (Murphy et al. 1989; Rodrik 2004).
