The Structure of Structural Change and Growth Erol Taymaz Yılmaz Kılıçaslan Department of Economics Middle East Technical University Ankara 06531 Turkey IKD Seminar 26 April 2007
Outline • Questions • Structure of production • Structure of trade • Structural convergence • Conclusions
Questions • In so far as the industrialisation remains an engine of development, structural change and technological growth and modernization, growing manufactured exports are a sign that this engine is working (Lall, 2000: 338).
Questions • Structure of industry, structural change and growth • Some industries are technologically more dynamic • Generate more innovations • Diffuse innovations throughout the economy • Some industries grow faster • Some industries are more productive
Questions Structural change facilitates growth • More innovative/dynamic structure • Average productivity: If the share of more productive industries increases, the average productivity increases.
Questions Convergence ? • Less-developed countries are expected to grow faster • by increasing capital intensity, and • by adopting (transferring) technologies generated by developed countries • What about the structure of the industry? Any convergence in structure?
Questions • Is there any relationship between structure, structural change and growth? • What is the contribution of structural change to productivity growth?
Data • UNIDO Industrial Statistics and Industrial Supply and Demand (Trade) Databases • 40+ countries • Production: 1965-1999 period, 3-digit industries • Trade: 1980-1999 period, 3-digit industries
Structural change and productivity • Labor productivity at the manufacturing industry level
Structural change and productivity • Within and between components of labor productivity growth
Structural change and productivity Contribution of structural change in the period 1965-99 • High income countries: almost no effect • Low income countries: very small effect • Fast growing countries: not very high, but varies between countries: • Korea: almost no effect • Ireland: not negligible (27 % in 1965-79, 16 % in 1980-99) • Turkey: negative after 1980! Within-industry productivity growth dominates between-industry productivity growth
Structure of production • 3-sector classification • High tech, medium tech, low tech (OECD) • Classification of countries • Low-income, mid-income, high-income (World Bank) • Growth performance (fast growing countries, Indonesia, Ireland, Korea, Malaysia, Malta, Philippines, Singapore and Turkey) • Average value added shares for 5-year periods • 1965-69, 1970-74, 1975-79, • 1980-84, 1985-89, 1990-94, 1995-99
MT India Pakistan Zimbabwe Kenya Tanzania Ethiopia HT LT Ethiopia India Kenya Pakistan Tanzania Zimbabwe Structure of production
Structure of production There is a strong relationship between structure and growth: • HT and MT sectors have a larger share in developed countries • Developing countries move towards MT industries • Fast growing countries achieve the fastest structural change and move towards HT industries
Structural convergence • Any convergence in industrial structure? • Do the structures of industry in developed and developing countries get “similar”? • Apply factor analysis to identify “ideal-typical” structures • 5-year averages
Structural convergence Three groups of countries • Club 1: Industrialized countries • Club 2: Less industrialized countries • Club 3: Transition club All clubs change their structures but there is no structural convergence. Some countries switch from one club to another over time.
Conclusions • Strong correlation between industrial structure and performance • Strong correlation between the speed and direction of structural change and industrial performance
Conclusions • Industry structure changes in both developed and developing countries • There is no structural convergence • Trade structure is more specialized • Developing country structure is more specialized • Persistence in international division of labor