In this post industrial age, is industrialization unachievable or possibly dangerous for developing countries?

Abstract

This paper examines to what extent it can be argued that we live in a post-industrial age of economic development. The case of India is compared to that of China in order to draw attention to the differences between a service-led economy and a manufacturing-driven economy. Finally, this paper assesses whether developing countries should leapfrog to a service-led economy and skip the industrialization phase.

The literature suggests that the relative predominance of the service sector can be largely explained by high-productivity in the manufacturing sector. The cases of China and India indicate that service-led economic growth can lead to high levels of informal employment, as well as Balance of Payment and current account deficit. Finally, it is questionable that developing countries do not need to industrialize because of the modern benefits of the service sector. The cases of shipbuilding in East Asia illustrate that developing countries can build up industries and seize market shares by taking advantage of the loss of international competitiveness caused by high wages in advanced economies. Therefore, the relative shift towards services in advanced countries may enable developing countries to build up their industries.