The role of the service sector in the process of industrialization

The goal of this paper is to examine the role of the service sector in the process of industrialization. We propose a model which recognizes that (non-traded) services are demanded by consumers as well as producers. Income increases thus lower production costs of industrial goods. The inclusion of non-traded services enables us to explain how a primary exporting economy can industrialize without resorting to protection. This paper can be construed as a formalization of some aspects of the Staple Theory of Growth. (C) 2002 Elsevier Science B.V. All rights reserved.