Structural change, productive development, and capital flows: does financial “bonanza” cause premature deindustrialization?

Abstract Recent contributions to the literature on industrialization and development have confirmed that manufacturing continues play a key role as driver of economic development. As corollary, these highlight importance premature barrier one main sources middle-income trap. In this paper, we analyze factors may hindered industrial in past four decades. particular, focus (non-Foreign Direct Investment) net capital inflows potential source deindustrialization. We consider sample 36 developed developing countries from 1980 2017, with major emphasis case emerging economies (EDEs) context increasing financial integration. show periods abundant caused significant contraction share employment GDP, well decrease complexity index. also phenomena “perverse” structural changes are significantly more relevant EDE than advanced ones they similarly occur across countries, regardless differences way contributed their Based such evidence, conclude some policy suggestions highlighting controls external macroprudential measures taming international mobility useful tools for promoting long-run productive top strengthening (short-term) macroeconomic stability.