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By Aynur Jafarova

Industrialization should be an essential part of the growth formula if Asian countries aim to prosper and avoid the middle income trap, the Asian Development Bank (ADB) notes.

In its report published on August 21, the ADB emphasized that manufacturing is essential to a high productivity service sector, technological innovation and modernizing agriculture.

"Historically, no economy has reached high income status without reaching at least 18 percent share of manufacturing in output and employment for a sustained period," ADB's Chief Economist Changyong Rhee believes.

The report also notes that one group of economies-Hong Kong, China; Japan; the Republic of Korea; Singapore and Taipei, China-rapidly industrialized to become countries with high income, while another group of economies, including China, Malaysia and Thailand, are transforming more slowly.

Other developing Asian nations, such as Bangladesh, India, Pakistan or the Philippines, are changing even more slowly, have created few manufacturing jobs, and are shifting from agriculture into services.

"Right now, as services boom in the region, it's tempting to shun industrialization, but it will be a serious mistake if a country wants to be prosperous," Rhee added.

According to the ADB report, industry does not lead the way in Asia. Services are the largest share of developing Asia's output and agriculture remains the largest employer, providing an income for 700 million people.

Regional diversity means Asia's economies require different policy priorities to promote transformation. Modernizing the agricultural sector is a key task in developing Asia, in particular for low income countries, the report said.

According to the report the middle income economies heavily dependent on labor-intensive sectors or currently bypassing industrialization should focus on upgrading their industrial base. For these nations, good quality education is essential for industrial diversification and reducing the path-dependency nature of structural transformation.

For small island economies, industrialization may not be cost effective, and the future lies in becoming competitive in certain service sector niche markets.

The report also charts regional progress in achieving the Millennium Development Goals (MDGs). It notes that two years before the MDG deadline in 2015, most of the region has made significant progress in reducing poverty, improving access to universal primary education, and promoting gender equity and women's empowerment.

The special supplement, A Framework of Inclusive Growth Indicators, finds that progress toward more inclusive growth has been positive in the 1990s and 2000s on most indicators for the majority of developing economies in Asia.

Established in 1966 and owned by 67 members, the ADB is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth and regional integration. In 2012, the ADB assistance totaled $21.6 billion, including co-financing of $8.3 billion.