Trade and Industrial Upgrading in Developing Countries

It is generally accepted that capital accumulation can help raise per capita income and living standards in an economy simply by allowing a fuller use of underutilized labor and natural resources without altering the efficiency with which resources are utilized. Long-term economic success, however, depends on sustained improvements in productivity; each worker producing more from any given level of effort provides the basis for rising incomes and living standards. In this sense, it is productivity gains, and not simply additional jobs, that characterize a virtuous process of accumulation and growth. Such a process is invariably associated with structural changes in output and employment as a result of both shifts in economic activities across agriculture, industry, and services and upgrading to higher value-added activities within each sector through the introduction of new products and processes. The importance of structure to the development process is partly due to the fact that the overall level of income is closely linked to the allocation of resources among sectors, and the sectors can show, at any point in time, significant variations in productivity levels. But it also derives from differences in the potential of various sectors for technical progress and productivity growth. Such differences emerge not only in the broad division of sectors into agriculture, mining, manufacturing, and services, but also in intra-sectoral structures.