To account for the qualitative differences between developed and developing
countries, this paper argues that the expensive in-house R&D that manufact
uring firms undertake in advanced industrial economies cannot be supported
in countries that are in the early stage of industrialization and do not ha
ve sufficiently large markets for manufacturing goods. Such economies grow
as standard development models predict: by accumulating physical and human
capital and increasing specialization by industry. Only at sufficiently hig
h levels of development there are incentives for systematic R&D efforts. As
a result, economies go through an industrial life cycle as they move from
initial backwardness to industrial maturity. In other words, development an
d growth are stages of a process of structural transformation characterized
by changing patterns of capital accumulation, specialization by industry,
and technological change. (C) 1999 Elsevier Science B.V. All rights reserve
d. JEL classification: E10; L16; O31; O40.