Even though “The golden age of finance has now ended,” (Barry Eichengreen in reference to the Great Recession), the golden age of industrialization in the developing world has just begun.
In a recent paper,'Leading Dragons phenomenon: new opportunities for catch-up in low-income countries,' Vandana Chandra, Yan Wang and I have presented evidence on how modern economic development is accompanied by structural transformation from an agrarian to an industrial economy and occurs through a process of continuous industrial and technological upgrading. Since the 18th century, all countries that industrialized successfully in Europe, North America and East Asia had two features in common: one, they exploited their comparative advantage; and two, they leveraged the late-comer advantage to emulate the industrial upgrading patterns of countries richer than them. Except for a few oil exporting countries, no country has achieved a high-income status without industrializing. In general, a change in GDP per capita is strongly and positively correlated with growth in value added in the manufacturing sector (figure 1). If a natural resource- or land-rich country has achieved a middle income status without a large manufacturing sector, it has rarely succeeded in sustaining growth.