Structural Transformation to Manufacturing and Services: What Role for Trade

Working Paper: CEPR ID: DP13351

Authors: Kym Anderson; Sundar Ponnusamy

Abstract: Understanding how and why economies structurally transform as they grow is crucial for sound national policy making. Typically analysts of this issue focus on sectoral shares of GDP and employment. This paper extends that to include exports, including of services. It also considers mining in addition to agriculture and manufacturing, and recognizes some of the products of those four sectors are nontradable. The theory section’s general equilibrium model provides hypotheses about structural change in different types of economies as they grow, and tests them econometrically with annual data for a sample of 117 countries for the period 1991-2014. The results point to the futility of adopting protective policies aimed at slowing de-agriculturalization and subsequent de-industrialization in terms of sectoral shares, since those trends inevitably will accompany economic growth. Fortuitously governments now have far more efficient and equitable ways of supporting the adjustments needed by people choosing or being pushed to leave declining industries.

Keywords: patterns of structural change; comparative advantage; productivity growth; declining sectors

JEL Codes: D51; E23; F11; F43; F63; N50; N60; O13; O14

Causal Claims

Cause	Effect
per capita income (D31)	shares of agriculture in GDP (Q19)
per capita income (D31)	shares of services in GDP (E20)
per capita income (D31)	shares of manufacturing in GDP (L60)
per capita income^2 (D31)	shares of manufacturing in GDP (L60)
natural resources per worker (Q32)	shares of nontradables in GDP (F62)
per capita income (D31)	shares of exports of labor-intensive manufactures (F16)
productivity growth in agriculture (O49)	shares of GDP (E20)
productivity growth in agriculture (O49)	shares of exports (F10)
productivity growth in agriculture (O49)	shares of employment (J21)