Economic history has recently emphasised the impact of economic shrinking on long-term economic growth, but economic theories do not provide explanations for how and why some countries avoid economic shrinking. In this case study of institutional change in post-independence Indonesia, we examine how the country managed to reduce the frequency of shrinking during the authoritarian regime and beyond. We argue that the state's autonomy, measured by macroeconomic policymaking, and accountability, measured by food security, were two key social capabilities that enabled Indonesia to reduce the frequency of economic shrinking. During this period, the ‘doorstep conditions’ for the transition into a democracy and stable economic growth emerged. More specifically, Indonesia managed to diversify its revenue base and make public resources more available for the broader common good. Loosening the connection between macroeconomic policymaking and elites opened up greater opportunities for the emergence of private enterprises. However, to date, the country is still far from a full-fledged open access society.

Structural change consists of the long-term changes in the sectoral composition of output and employment. We introduce a structural change perspective to the study of income inequality in 27 countries of the developing world for the period 1960-2010. The service sector has become the main employer, but the agricultural sector is central to the income distribution because poverty is mostly rural, and the labor surplus is high. We decompose the sectoral composition of aggregate labor productivity at the country level, divide the countries into agrarian, dual (beginner, intermediate and advanced), and mature economies and use the inter-sectoral productivity gap to test the effect of structural change on income inequality. We confirm increases in agricultural productivity everywhere and find that the inter-sectoral gap is positively associated with income inequality. The effect is negligible in agrarian and advanced economies but powerful in dual beginner economies: an increase of 1% in the inter-sectoral gap increases income inequality by 0.5%. The effect peters out in dual intermediate economies and disappears completely in dual advanced economies. Finally, redistribution has been the key to compensating the losers in the income changes, particularly for those entering the non-agricultural economy.

While the income per capita in the developing world since the turn of the Millennium has grown faster than that of the developed world, the question whether there is an ongoing process of catching up between countries remains. The notion of income convergence has provided many insights into the sources for long-run growth but has largely neglected the role of social capabilities in economic development. By social capabilities we mean the qualification of the 'theory of convergence' which catch up growth and social capability in developing countries: a conceptual and measurement proposal asserts that productivity growth rates between countries tend to vary inversely with regard to productivity levels. The social capabilities approach holds that a country's potential for rapid growth is strong when "it is technologically backward but socially advanced" (see Abramovitz, 1986:388). This means that the potential to catch up under globalization is strongest for countries in which social capabilities are developed to allow successful use of technologies and where institutional arrangements are conducive to economic progress. Yet there is no clear agreement in the literature on the crecimiento convergente y capacidad social en países en desarrollo: una propuesta conceptual y de medición resumen Desde el cambio del milenio, el pib per cápi-ta de los países en desarrollo ha crecido más rápido que el de los países desarrollados. Sin embargo, la pregunta acerca de si estos países en desarrollo han comenzado un proceso de convergencia con los países más ricos del globo se mantiene. La hipótesis de convergencia de ingresos cuestiona las fuentes de crecimiento a largo plazo, pero ha descuidado en gran medida el rol de las capacidades sociales en el desarrollo económico. El enfoque de las capacidades sociales sostiene que el potencial de crecimiento económico es mayor para los paí-ses que desarrollan las capacidades sociales que permiten la adopción de nuevas tecnologías y honran a su vez los arreglos institucionales favorables al progreso económico de toda la población. Sin embargo, no hay un consenso claro en la literatura sobre los principales componentes de las capacidades sociales o cómo medirlas. Este ensayo sostiene que los procesos de crecimiento que diversifican la estructura económica apoyan la inclusión, la autonomía del Estado y la rendición de cuentas del mismo frente a la sociedad generan mejoras sostenidas en los niveles de ingreso per cápita. Sin el desarrollo de estas capacidades, la desigualdad económica puede aumentar, situación que podría, a su vez, conducir a un estancamiento del crecimiento y, por tanto, a reducir las perspectivas de convergencia global de los ingresos de los países en desarrollo.M a r t i n A n d e r s s o n y A n d r é s P a l a c i oPalabras clave: convergencia económica, brecha de ingresos, capacidad social.

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