Productivity growth and structural transformation

Abstract

Highlights• The data indicate that, along the development path, countries shift resources towards manufacturing industries that experience the most rapid productivity growth, but towards broad sectors that experience relatively slow productivity growth. • This is consistent patterns of structural transformation in a calibrated multi-industry growth model. • The "productivity mechanism" for structural transformation can thus account for the finding in the literature that along the development path countries start out specialized, become gradually more diversified and subsequently specialize again. AbstractEconomies diversify and then re-specialize as they develop. These "stages of diversification" may result from productivity-driven structural change if initially resources are concentrated in industries other than those that dominate economic structure in the long run. A calibrated multi-industry growth model with many countries and with industry differences in productivity growth rates replicates the main features of the "stages of diversification". We also present evidence that countries systematically shift resources towards manufacturing industries with rapid productivity growth, and towards sectors with low productivity growth, consistent with the model and supporting the "productivity mechanism" for structural transformation.

Quality Upgrading and the Stages of Diversification

“…More specifically, focusing on the terms inside squared brackets in (25), if sectors are complements (substitutes) -i.e., ε ∈ (0, 1) (ε > 1) -exports will become more concentrated on products that experience relatively lower (higher) quality and production-efficiency growth in the rest of the world; quality and efficiency differences across sectors abroad will play no role if ε = 1. 5 The capacity of efficiency growth heterogeneity to explain the evolution of product diversification in a closed economy has been already pointed out by Samaniego and Sun (2016). We add to this, the openeconomy analysis, and the possible importance of heterogeneity in quality-upgrading potential across product lines.…”

“…Samaniego and Sun (2016), in turn, present a close economy model of economic growth and structural change. They explain the stages of diversification as a result of transitions among industries that experience different productivity growth rates.…”

Rethinking Development Policy: Deindustrialization, Servicification and Structural Transformation

“…This low elasticity of substitution results in an increased flow of resources from the high productivity manufacturing sector to the lower productivity services sector. Samaniego and Sun (2016) attribute this "humped-shaped" profile of manufacturing's share of employment versus income or GDP per capita, as these now-developed economies moved through the industrialization followed by the deindustrialization phases of development, in large measure to productivity differences within manufacturing. With manufactured goods seen as substitutes for one another (with an elasticity of substitution greater than one) resources shift over time toward production of the high-productivity goods.…”

Inflation, Liquidity and Innovation

“…We identify firms whose projects have more upside potential in the sense of hypothesis (ii) of Proposition 1 through their economic activity in the U.S., which serves as a benchmark country. This is done by computing the average value added growth across two-digit ISIC Rev 3.1 sectors for all years in the UNIDO (2017) Industrial Statistics Database and, alternatively, by the average R&D intensity of two-digit sectors provided by Samaniego and Sun (2016). Similarly, we record the volatility of economic activity as measured by the standard deviation of value added in two-digit ISIC Rev 3.1 sectors for all years in UNIDO (2017) to identify more risky projects as in hypothesis (iii) of Proposition 1.…”