Industrialization represents a key policy option for sustainable economic growth, and governments must pursue structural transformation. The Ethiopian government has been designing and implementing different industrialization policies to achieve the desired structural transformation of the country. However, an unintended jump or massive twisting was observed in the economic structure, mainly due to the shift in the dominance of output from agriculture to the service sector in the country. Hence, this study investigates the determinants of unintended service sector output growth in Ethiopia from 1990 to 2022 using the autoregressive distributed lag (ARDL) model. The findings suggest that differences in labor productivity among agriculture, manufacturing, and the service sector positively influence service sector output growth in the country. This implies that labor productivity disparities play a significant role in shaping the growth trajectory of the service sector, with higher productivity levels in services and low productivity in other sectors contributing to the faster expansion of the service sector. In addition, variables such as per capita GDP, gross fixed capital formation, and credit to the private sector are found to have a favorable impact on service sector growth, while openness has a negative effect. This study adds to the understanding of unintended structural transformations in developing countries by highlighting how labor productivity disparities can drive shifts in economic dominance, particularly the rapid growth of the service sector at the expense of traditional sectors like agriculture. Furthermore, it emphasizes that such transformations may not align with national development objectives if not managed strategically. Therefore, enhancing labor productivity in agriculture and manufacturing through technology, training, and education is crucial to achieve the desired structural change. In addition, increasing gross fixed capital and improving a The Ethiopian government has been designing and implementing different industrialization policies to achieve the desired structural transformation of the country. However, an unintended jump or massive twisting was observed in the economic structure, mainly due to the shift in the dominance of output from agriculture to the service sector in the country. Hence, this study investigates the determinants of unintended service sector output growth in Ethiopia from 1990 to 2022 using the autoregressive distributed lag (ARDL) model. This study adds to the understanding of unintended structural transformations in developing countries by highlighting how labor productivity disparities can drive shifts in economic dominance, particularly the rapid growth of the service sector at the expense of traditional sectors like agriculture. Furthermore, it emphasizes that such transformations may not align with national development objectives if not managed strategically. Therefore, enhancing labor productivity in agriculture and manufacturing through technology, training, and education is crucial to achieve the desired structural change. African Economics Development Economics Development Policy Economic Growth Labor Economics Economic Development, Innovation and Growth Structural Transformation and Economic Development in Manufacturing Introduction Structural transformation is generally defined as a transition in an economy's industrial structure that results in changes in the relative importance of three major sectors: agriculture, industry, and services (Clark, 1940 ; Chenery, 1960 ; Fisher, 1939 ; Kuznets, 1957 ; Syrquin, 1988 ). It refers to the reallocation of economic activity Industrialization is an ideal policy option for sustainable economic growth, and it is what governments need to achieve structural transformation of the economy (Arkebe, 2018 ). The transition from agriculture to industrialization, followed by a shift toward service, is widely recognized as a crucial factor in achieving sustained long-term economic development (Bustos et al., 2020 ; Gollin et al., 2023 ). Methods of data analysis Both descriptive and inferential statistics were used to analyze the collected data. We employ the ARDL model for estimation purposes. Theoretical foundations Lewis ( 1954 ) introduced the dual-sector model of economic development, which posited that in developing countries, there is a surplus labor force in the traditional agricultural sector that can be absorbed by the modern industrial sector. This surplus labor, often underemployed and earning low wages in agriculture, can shift to the industrial sector, where productivity and wages are higher, leading to overall economic growth. According to this view, structural changes include an increase in household expenditure on structural changes, such as an increase in female participation in economic activities and producer services, such as finance, insurance, real estate and business services, which have rapidly expanded in most advanced economies (Fixler and Siegel 1999 ) as labor-intensive manufacturing industries are transferred to less developed countries and the trade between them expands (Freeman, 1995 ; Wood, 1995 ). However, the cause of the unintended shift in the economic structure toward the service sector in Ethiopia lacks empirical evidence. The same is true for the manufacturing sector, where labor productivity is very low in Ethiopia, and its overall productivity and contribution to the country’s GDP is less than those of the service sector. As labor productivity in the industry sector remains low, firms may shift toward higher value-added services, such as insurance, financial sectors, real estate, and transportation. This can enhance the output growth of the service sector. Therefore, low labor productivity in the agriculture sector and manufacturing sector can lead to a shift in resources toward the service sector, which can drive the growth of the service sector.

participation rate and the relative sizes of economic sectors. The transition from an agricultural economy to manufacturing increased the size of the sector with In economics, economic growth is an increase in the quantity and quality of the economic goods and services that a society produces. It can be measured as the increase in the inflation-adjusted output of an economy in a given year or over a period of time. The rate of growth is typically calculated as real gross domestic product (GDP) growth rate, real GDP per capita growth rate, GNI per capita gr Increases in labor productivity (the ratio of the value of output to labor input) have historically been the most important source of real per capita economic growth. In a famous estimate, MIT Professor Robert Solow concluded that technological progress has accounted for 80 percent of the long-term rise in U.S. per capita income, with increased investment in capital explaining only the remaining 20 percent. Increases in productivity lower the real cost of goods. Over the 20th century, the real price of many goods fell by over 90%. Economic growth has traditionally been attributed to the accumulation of human and physical capital and the increase in productivity and creation of new goods arising from technological innovation. Further division of labour (specialization) is also fundamental to rising productivity. Before industrialization, technological progress resulted in an increase in the population, which was kept in check by food supply and other resources, which acted to limit per capita income, a condition known as the Malthusian trap. The rapid economic growth that occurred during the Industrial Revolution was remarkable because it was in excess of population growth, providing an escape from the Malthusian trap. Countries that industrialized eventually saw their population growth slow down, a phenomenon known as the demographic transition. Increases in productivity are the major factor responsible for per During the Industrial Revolution, mechanization began to replace hand methods in manufacturing, and new processes streamlined production of chemicals, iron, steel, and other products. Machine tools made the economical production of metal parts possible, so that parts could be interchangeable. (See: Interchangeable parts.) During the Second Industrial Revolution, a major factor of productivity growth was the substitution of inanimate power for human and animal labor. Also there was a great increase in power as steam-powered electricity generation and internal combustion supplanted limited wind and water power. Industrialization creates a demographic transition in which birth rates decline and the average age of the population increases. Women with fewer children and better access to market employment tend to join the labor force in higher percentages. There is a reduced demand for child labor and children spend more years in school. The increase in the percentage of women in the labor force in the U.S. contributed to economic growth, as did the entrance of the baby boomers into the workforce. === Conventional growth domain === It has been observed that GDP growth is influenced by the size of the economy. Joerg Baten and Jan Luiten van Zanden employ book production per capita as a proxy for sophisticated literacy capabilities and find that "Countries with high levels of human capital formation in the 18th century initiated or participated in the industrialization process of the 19th century, whereas countries with low levels of human Specifically, they state that "democracy increases future GDP by encouraging investment, increasing schooling, inducing economic reforms, improving public goods provision, and reducing social unrest". In Why Nations Fail, Acemoglu and Robinson said that the English in North America started by trying to repeat the success of the Spanish Conquistadors in extracting wealth (especially gold and silver) from the countries they had conquered. This system repeatedly failed for the English. Their successes rested on giving land and a voice in the government to every male settler to incentivize productive labor. In Virginia it took twelve years and many deaths from starvation before the governor decided to try democracy. === Entrepreneurs and new products === Policymakers and scholars frequently emphasize the importance of entrepreneurship for economic growth. However, surprisingly few research empirically examine and quantify entrepreneurship's impact on growth. This is due to endogeneity—forces that drive economic growth also drive entrepreneurship. In other words, the empirical analysis of the impact of entrepreneurship on growth is difficult because of the joint determination of entrepreneurship and economic growth. A few papers use quasi-experimental designs, and have found that entrepreneurship and the density of small businesses indeed have a causal impact on regional growth. Another major cause of economic growth is the introduction of new products and services and the improvement of existing products. New products create demand, which is necessary to offset the decline in employment that occurs through labor-saving technology (and to a lesser extent employment declines due to savings in energy and materials). In the U.S. by 2013 about 60% of consumer spending was for goods and services that did not exist in 1869. Also, the creation of new services has been more important than invention of new goods. === Structural change === Economic growth in the U.S. and other developed countries went through phases that affected growth through changes in the labor force participation rate and the relative sizes of economic sectors. The transition from an agricultural economy to manufacturing increased the size of the sector with high output per hour (the high-productivity manufacturing sector), while reducing the size of the sector with lower output per hour (the lower productivity agricultural sector).