# **4 Conclusion**

The anxiety that permeates from premature deindustrialization and deindustrialization, in general, is not rooted in descriptive variations observed in the data. Many observers and policymakers contend industrialization to be an engine of growth which creates relatively higher paying jobs. Indeed, there is evidence that manufacturing plays a critical role in the catch-up process as it exhibits an unconditional convergence in labor productivity unlike the other sectors of the economy (Rodrik, 2012). A fallout of this hypothesis is that policy should be placed to arrest the slide in industry. However, for the policy to be effective, it is crucial to understand what underlying factors are responsible for the divergent paths of transformation. Rodrik (2016) hints that trade can explain deindustrialization faced by many developing countries as they lose manufacturing share opening their borders because of their comparative disadvantage in the sector. In this paper, I find limited evidence of the comparative advantage hypothesis. The accounting exercises show that even if the Latin American economies counterfactually move to mimic the trade shares of countries that have a large share of their workforce in industry and manufacturing, they will realize modest gains in their shares of industrial and the manufacturing employment. More important than trade shares are the differences in sectoral linkages which account for more than 30 percent of the industrial employment gap. Integrating linkages in theories of structural transformation seem promising in getting closer to matching the data, as standard theories are not able to account for some essential trends (Buera & Kaboski, 2009). There is growing interest in this direction with many studies investigating the role of variations in linkages across countries and time in the process of structural transformation, and economic growth in general (Berlingieri (2014), Bartelme & Gorodnichenko (2015), Fadinger _et al._ (2018), Sposi (2018) etc.). In a related paper, using an endogenous model of sectoral linkages, I study the distortions in intermediate markets in the same countries and find that changes in distortions can deliver quantitatively meaningful expansion of the industrial base (Sinha, 2018).<sup>10</sup> Comparing Latin American economies to Korea and Taiwan shows that the low growth of productivity in the region is pervasive across sectors and is pivotal in accounting for the difference in growth experience of the region compared to the Asian miracles since the 1960s. Nonetheless, differences in productivity growth in manufacturing and wholesale are especially relevant (Ung ̈or<sup> ̈</sup> , 2017). If the manufacturing sector in the Latin American economies was to experience the high growth in productivity as realized by Korea and Taiwan, the sector would have lost a larger share of employment during the period according to the price-effect mechanism. Still, economic growth would be higher in such a scenario. Thus, the pertinent issue regarding policy making is to identify if the present allocation truly reflects inefficiencies. An even more

> 10Using panel data from 28 countries in a recent paper, I also find that the elasticity of substitution across sectoral inputs to be less than one in each of the three broad sectors of the economy (Sinha, 2019). Hence, linkages respond to changes in relative prices driven by sector-based productivity growth as well.

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