Does the Declining Share of Agricultural Output in GDP Indicate Structural Transformation? The Case of Ethiopia

Abstract

It is not uncommon that different government officials and practitioners infer the fallingagricultural share in GDP to the underpinning of structural transformation in an economy. By using variousstudies result and a time series of data spanning from 1981 up to 2017, this paper investigated, whetherthe declining share of agricultural output in GDP is indicating structural transformation or not in Ethiopianeconomy. The study showed that the service is the fastest-growing sector in Ethiopia, and it covers morethan 40% of GDP. The share of agriculture sector was 45% of GDP until 2011, while the industry sector hasbeen stagnating. Thus, it shows how the falling share of the agriculture sector in GDP is being supersededby the service sector. Empirical works also reveal that even though the share of the agricultural sector inGDP is falling, it is the primary source for the overall economic growth of Ethiopia. The share of the ruralpopulation has decreased from 89 percent in 1981 to 80% in the year 2017. So the vast population of thecountry is living in rural areas where agricultural-based activities are common. Lack of labor shift from theagricultural sector to the industrial sector can also be attributed to the insufficient expansion of themodern industrial sector to absorb the growing force labor. Furth more, the demographic transition alsoshowed a relative decline. Since structural transformation involves several interrelated processes, thedeclining share of agriculture output to GDP alone cannot explain the prevalence of structural change; theother processes like; industrialization, urbanization, and demographic transition need to be scrutinized