This paper provides a theoretical model to explain how industrialization affects the structure of international trade. Using conventional economic concepts such as economies of scale and monopolistic competition and considering both horizontal and vertical product differentiation, the model explicitly focuses on industrialization and its impact on the volume and share of intra- and inter-industry trade. The paper considers two processes: one that increases the quality of manufactured products and one that shifts labor from the agricultural to the manufacturing sector. The model shows that the volume and share of intra-industry trade increase when the quality of products in a developing country improves and when the difference in relative factor endowments between an industrial and a developing country shrinks. It also suggests that the faster a developing country industrializes, the faster intra-industry trade increases. This paper investigates empirically the structural changes in Japan's international trade with Indonesia and Korea for 1975 and 1985. These countries were chosen because they differ in their relative factor endowments and technology.