household income. Naturally, the welfare and growth potential of industrial output expansion are likely to be even more significant in countries where underlying development models value learning-by-doing [Jovanovic and Nyarko (1996)].

In this regard, structural economic transformation, although not sufficient, may be a necessary condition for a better integration into the new global economy. This transformation is all the more important for long-run growth, not least because primary commodity prices tend to decline vis-à-vis those of manufactured goods, a trend which has resulted in a continuous deterioration of net barter terms of trade and has fueled recurrent balance of payments crisis in a large number of primary commodity exporting countries in Sub-Saharan Africa [Goldstein et al. (2006)].<sup>15</sup> Still, in the absence of structural transformation to achieve greater economic diversification, most countries in Sub-Saharan Africa continue to depend overwhelmingly on raw materials and primary commodity exports for foreign reserves [Fofack (2008)]. However, income elasticities of primary commodities tend to be lower than unity; at the same time, advances in technology which underpinned structural transformation in industrial and emerging market economies are resulting in demands for fewer raw materials per unit of manufactured goods.

The combination of these supply and demand side factors is partly responsible for the widening gap between the rising price of manufactured goods and primary commodities. Not surprisingly, overtime, the deterioration of barter terms of trade under the secular development models prevailing in most countries in Sub-Saharan Africa has resulted in recurrent balance of payments crisis and structural trade deficits [Easterly and Levine (1997), Artadi and Sala-i-Martin (2003)]. In response to recurrent balance of payments disequilibria countries resorted to foreign-deficit financing which resulted in debt overhang in the mid-1990s when the scope of external liabilities owed by the region to the rest of the world became unsustainable [Elbadawi et al. (1997)].<sup>16</sup> Contrasting this secular development model, recent trends and production patterns in emerging market economies have been characterized by increasing specialization and expanding scope of manufactured goods and exports diversification. At the macroeconomic level, this transformation has resulted in impressive reserves accumulation [Summers (2006), IMF (2007)].<sup>17</sup> The sustained buildup of foreign reserves following accumulation of current account surpluses in emerging market economies is certainly another important dimension of the new globalization landscape.<sup>18</sup> Not the least, because these surpluses have enabled a number of emerging market economies to become net exporter of capital; in defiance of economic theory, which suggests that resources should flow from capital-abundant to capital-scarce countries where returns on capital are higher [Lucas (1988)].

> 15 The net barter terms of trade are measured by the ratio between the unit value index of exports and that of imports.

> 16 The growing scale of external liabilities and inability of countries to honor their external commitments is partly at the core of the Highly Indebted Poor Country initiative, which provided debt relief to a large number of low-income countries committed to the PRSP process. For further details see World Bank (1999).

17 In fact, according to Summers (2006), the buildup of reserves in the developing world and large flow of capital from the most successful emerging markets economies to traditional industrial countries is the most surprising development in international finance over the last decades.

18 Indeed, this characterization may be one of the most important aspects of the new globalization landscape, especially given that most developing countries acceding to independence primarily earned foreign exchanges from exports of primary commodities and natural resources.

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