Working Paper: NBER ID: w23132
Authors: Xinshen Diao; Margaret McMillan; Dani Rodrik
Abstract: Growth has accelerated in a wide range of developing countries over the last couple of decades, resulting in an extraordinary period of convergence with the advanced economies. We analyze this experience from the lens of structural change – the reallocation of labor from low- to high-productivity sectors. Patterns of structural change differ greatly in the recent growth experience. In contrast to the East Asian experience, none of the recent growth accelerations in Latin America, Africa, or South Asia was driven by rapid industrialization. Beyond that, we document that recent growth accelerations were based on either rapid within-sector labor productivity growth (Latin America) or growth-increasing structural change (Africa), but rarely both at the same time. The African experience is particularly intriguing, as growth-enhancing structural change appears to have come typically at the expense of declining labor productivity growth in the more modern sectors of the economy. We explain this anomaly by arguing that the forces that promoted structural change in Africa originated on the demand side, through either external transfers or increase in agricultural incomes. In contrast to Asia, structural change was the result of increased demand for goods and services produced in the modern sectors of the economy rather than productivity improvements in these sectors.
Keywords: growth; developing economies; structural change; labor productivity
JEL Codes: O1; O11; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| demand-side factors (J23) | structural change in Africa (O55) |
| structural change in Africa (O55) | declining productivity in modern sectors (O49) |
| within-sector labor productivity growth in Latin America (O54) | overall economic growth (O49) |
| structural change in Africa (O55) | economic growth (O49) |
| demand-side shocks in Africa (O55) | structural change (L16) |
| structural change in Africa (O55) | productivity growth in modern sectors (O49) |