Agenor, Pierre-RichardDinh, Hinh T.2013-07-102013-07-102013-04https://hdl.handle.net/10986/14443This paper studies the role of public policy in promoting industrial transformation from an imitationbased, low-skill economy to an innovation-based, high-skill economy, where technological progress now occurs through the domestic invention of ideas. Industrial transformation is measured by changes in an index of industrial structure, defined as the ratio of the variety of imitation- to innovation-based intermediate goods. A key mechanism through which productivity increases initially in both the imitation and innovation sectors is through a knowledge externality associated with learning by doing in the imitation sector. The process of industrialization increases the demand for high-skill labor, inducing individuals to invest in education. The model also emphasizes the distinction between basic or core infrastructure, which promotes imitation, and advanced infrastructure, which promotes innovation. A calibrated version for a low-income country is used to perform several policy experiments, including an increase in investment in infrastructure, a reduction in the cost of training, and improved enforcement of property rights.en-USCC BY 3.0 IGOACCESS TO BANKACCESS TO BANK LOANSACCOUNTINGADJUSTMENT PROCESSADVERSE EFFECTAGRICULTUREALLOCATIONARBITRAGEASSET PRICEBANK LOANSBENCHMARKBINDING CONSTRAINTBONDSBUDGET CONSTRAINTBUSINESS CYCLECAPITAL FORMATIONCAPITAL GAINCAPITAL STOCKSCENTRAL BANKCOLLATERALCOMMODITY PRICESCOMPETITIVENESSCONSTANT RETURNS TO SCALECONSUMER EXPENDITURECONSUMPTION EXPENDITUREDEADWEIGHTDEADWEIGHT LOSSDEFICIT FINANCINGDEVELOPING COUNTRIESDEVELOPMENT ECONOMICSDEVELOPMENT POLICYDIMINISHING RETURNSDISCOUNT RATEDISCOUNTED VALUEEARNINGECONOMETRICSECONOMIC DEVELOPMENTECONOMIC GROWTHECONOMIES OF SCALEELASTICITY OF SUBSTITUTIONEMPLOYMENTENTRY COSTEQUILIBRIUMEQUIPMENTEXOGENOUS RATEEXPORT MARKETEXPORTSEXTERNAL FINANCEEXTERNALITIESEXTERNALITYFINANCIAL SECTORFINANCIAL SUPPORTFIRM GROWTHFIRM LEVELFIRM PERFORMANCEFIRM SIZEFISCAL POLICYFIXED CAPITALFORMAL ANALYSISGDPGLOBALIZATIONGOVERNMENT INVESTMENTGOVERNMENT REVENUESGOVERNMENT SPENDINGGROWTH RATEHOLDINGHUMAN CAPITALINCOMEINCOME DISTRIBUTIONINCOME GROWTHINDUSTRIALIZATIONINEXPERIENCED WORKERSINFORMAL ECONOMYINFORMATION ASYMMETRIESINNOVATIONINNOVATIONSINTELLECTUAL PROPERTYINTEREST RATEINTERNATIONAL BANKINTERNATIONAL ECONOMICSINTERNATIONAL MARKETSINVESTINGINVESTMENT FLOWSINVESTMENT RATEJOBSLABOR COSTLABOR COST ADVANTAGELABOR DEMANDLABOR FORCELABOR MARKETLABOR MARKETSLABOR PRODUCTIVITYLABOR SUPPLYLACK OF CREDITLEGAL CONSTRAINTSLEVIESLIVING STANDARDSLOCAL FIRMSLONG-RUN EFFECTSMACROECONOMICSMANUFACTURING INDUSTRIESMARGINAL BENEFITSMARGINAL COSTMARGINAL PRODUCTMARGINAL REVENUEMARKET CONDITIONSMARKET INTEREST RATEMARKET SHAREMAXIMUM LIKELIHOOD ESTIMATIONMONETARY FUNDNATURAL RESOURCESOPEN ECONOMYOPPORTUNITY COSTOPTIMIZATIONPATENTSPOLITICAL ECONOMYPOSITIVE EXTERNALITYPREVIOUS SECTIONPRICE ELASTICITYPRICE ELASTICITY OF DEMANDPRIVATE CAPITALPRIVATE CAPITAL STOCKPRIVATE INVESTMENTPRODUCT INNOVATIONPRODUCTION COSTSPRODUCTION FUNCTIONPRODUCTIVITYPRODUCTIVITY GAINSPRODUCTIVITY GROWTHPRODUCTIVITY INCREASESPROPERTY RIGHTSPUBLIC INVESTMENTPUBLIC SECTORPUBLIC SPENDINGRATE OF RETURNRENTSRURAL WORKERSSCALE EFFECTSSHARE OF INVESTMENTSKILL PREMIUMSKILL REQUIREMENTSSKILLED WORKERSSTOCKSTAXTAX RATETAX REVENUESTELECOMMUNICATIONSTOTAL FACTOR PRODUCTIVITYTRAINING COSTTRAINING COSTSTRAINING PERIODUNSKILLED LABORUNSKILLED WORKERUNSKILLED WORKERSUTILITY FUNCTIONVALUE ADDEDVOCATIONAL TRAININGVOCATIONAL TRAINING PROGRAMSWAGE INCREASESWAGE RATEWAGESWorld Bank10.1596/1813-9450-6405