Industrial growth as a diffusion process : a cross-country study

Industrial growth in economic development can be seen as a diffusion process of the industrial sector penetrating or increasing its share in the national market. A technological diffusion model in the field of industrial organization has been applied to explain the questions concerning industrial growth among countries: how countries' industrial shares grow and why they grow at different rates. A two-stage analysis is involved in the explanation. First, a logistic function of the industrial growth path or diffusion expressing the percentage share of manufacturing in GDP is fitted to obtain the rate of industrial growth for each of 114 countries. Secondly, factors explaining the variation of the estimated industrial growth rates from the first stage are determined by an OLS regression analysis.

The empirical results provide different industrial growth paths and growth rates for 114 countries. The differences in the industrial growth rates are significantly explained by the level of income, the size of the domestic market, investment, the technology-gap, income inequality, the role of government, and the initial share of manufacturing. Exports, on the other hand, are not a direct determinant of industrial growth, but contribute indirectly by way of their impact on investment.