Industry 4.0 readiness and sectoral growth in developing economies: evidence from a novel cross-country index

This study examines Industry 4.0 readiness (I4R) and its role in the structural transformation of developing countries. While I4R drives growth, its sectoral impacts vary significantly. Using a novel I4R index and data from 87 countries (2007–2020), we find I4R significantly enhances manufacturing growth. Specifically, for Industrial Leaders, the total marginal effect reaches 0.635, indicating that technological depth acts as a critical multiplier for growth. However, we find a robust negative effect on the service sector, particularly in countries with weaker adaptive capacity, which risks premature deindustrialization or stagnation in the service sector. These dual findings highlight a critical policy trade-off. Leveraging I4R requires promoting manufacturing alongside targeted investments in technological infrastructure and human capital to mitigate service-sector disruption. Our study provides evidence for inclusive innovation policies to navigate this complex digital transformation.