‘Ctrl+Supr’ Versus ‘Shift+Comp’ Industrialization and Business Services as Engine of Economic Growth

Manufacturing has conventionally been viewed as the only way to achieve high-income status for developing economies. Reaching a concrete threshold in its employment or output shares was synonym of being a rich economy in the long run. However, a downturn in the weight of the industrial sector has been observed in the last decades not only in the developed regions but also in the low- and medium-income ones. This premature deindustrialization in most developing countries and some evidence relating services, mainly those related to business sector, to prosperity have turned into a debate on rethinking the engine of economic growth. This chapter revisits the relationships between industrialization and tertiarization and growth as the focus of the current facts. Methodologically, the value added is the introduction of a probabilistic (binary) non-linear model that analyses the role of industrialization on the likelihood of achieving high-income status. This approach solves the econometric challenges of the traditional Kaldorian framework used in previous works. We also analyse the role of some of the characteristics of the industrialization process such as product sophistication and skill intensity. Finally, we also test the role of services, focusing on business services, as a complementary engine of economic growth when structural burdens limit the role of manufacturing.