Is Income Convergence Possible with a Diminishing Industry’s Output? Development Gap and Structural Changes in Montenegro Since the World War II

Abstract

Intensive industrialisation in the second half of XX century was the main driving force of the most dynamic economic growth in the Montenegrin economic history. Since the transition from self-management socialism to a market-oriented economy, the Montenegrin economy has become more service-oriented. Empirical studies show that TFP growth is higher in industry and knowledge-intensive services than in other services, leading to service-oriented economies growing at a lower rate. This study confirms the same for the Montenegrin economy. If industry and knowledge-intensive services do not expand, will Montenegro diverge instead of converging to developed economies? The results from this study contribute to convergence analysis and serve as an example of the growth prospects of developing countries with fewer industry and knowledge services-oriented economies.