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The New Structuralism

The New Structuralism. Topic 1: Structural Change Old and New National Graduate Institute For Policy Studies IDTP Fall 2012 John Page. Rediscovering Structural Change. Academic interest in structural change waned in the 1980s Cross country regressions consigned it to the “residual”

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The New Structuralism

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  1. The New Structuralism Topic 1: Structural Change Old and New National Graduate Institute For Policy Studies IDTP Fall 2012 John Page

  2. Rediscovering Structural Change • Academic interest in structural change waned in the 1980s • Cross country regressions consigned it to the “residual” • The result for public policy was a focus on “whole economy” drivers of growth such as openness, institutions, governance, etc. • These prescriptions proved to be of little practical relevance to public policy

  3. What’s New? • Sectors, Products and Firms • Products: Diversity and sophistication (Imbs, Wacziarg, Cadot, Hausmann, Rodrik) • Firms: The distribution of productivity across firms within industries (Hsieh, Klenow) • Why does it matter? • Linking the product structure of the economy to growth • Linking industrial structure with growth

  4. Products:What you make matters • Economies with more sophisticated manufacturing sectors grow faster. • “Sophisticated” products embody advanced country knowledge and productivity • As the manufacturing base moves from low sophistication to higher sophistication activities, new export opportunities arise, knowledge becomes more generalized and productivity rises • More diverse economies have higher incomes. • More diverse economies are better able to take advantage of opportunities in global markets • A wide range of industrial activities provides a broad basis for the entry and exit of firms

  5. Measuring Product Sophistication • Associate a per capita income with each product: • Weighted average of the per capita income of all countries that manufacture the product • Weights are “production intensities”: Share in domestic production divided by share in global production • Overall sophistication is the weighted average of the per capita incomes associated with each industry.

  6. Measuring Product Sophistication

  7. 1985 9.2 SGP JPN USA SWE HKG ISR NOR HUN GBR FIN ITA 9.1 ARE MLT LUX FRA CAN AUT AUS DNK MAC ANT CHN POL ZAF IRL PRI TWN ESP KOR BEL IND NZL MUS MEX CHL BRB KWT MYS 9 IRN CYP Manufacturing Production Sophistication (in logs) ISL EGY PRT ARG VEN GRC TUR CPV ZWE TTO PER IRQ ECU NGA PAN DZA KEN COL SYR JOR IDN PHL MAR TZA MWI SLV 8.9 URY GTM CRI FJI PAK HND SWZ PNG DOM BWA MDG BGD SLE ZAR CUB BOL SEN NIC GHA RWA 8.8 CAF LSO 6 7 8 9 10 Per capita GDP PPP I$2000 (in logs) NEW VIEWS OF INDUSTRIALIZATION AND GROWTHWhat you make matters: As early as 1985 China and India had production structures that were highly sophisticated for their level of income

  8. Relatively unsophisticated - sectors 1 successful .8 low - income .6 stagnant low - income .4 stagnant mid - income .2 HIGH INTENSITY successful 0 LOW INTENSITY mid - Income OECD -.2 -.4 -.6 4000 6000 8000 10000 12000 14000 16000 18000 Income per capita associated with sector of production NEW VIEWS OF INDUSTRIALIZATION AND GROWTHWhat you make matters: Fast growing middle income countries were exiting low sophistication manufacturing. Fast growing low income countries were entering it.Evolution of production intensity 1975-2005

  9. Relatively sophisticated industries - 1 .5 OECD HIGH INTENSITY 0 LOW INTENSITY successful - mid income -.5 stagnant low - income stagnant -1 mid - income - successful low income -1.5 6000 8000 10000 12000 14000 16000 18000 Income per capita associated with sector of production NEW VIEWS OF INDUSTRIALIZATION AND GROWTHWhat you make matters: Fast growing countries were all increasing the intensity of high sophistication manufacturing. Slow growing countries were notEvolution of production intensity 1975-2005

  10. Industrial Structure and Productivity • Some new stylized facts: • TFP levels vary more across firms in the same industry in poor countries than in high income countries. • Variations are related to the size structure of industry. • But, why do inefficient firms survive? • Lack of competition • Policy distortions • Market segmentation

  11. Firm Level Distribution of TFP

  12. Actual versus efficient size distribution of firms.

  13. Implications for Public Policy • If “what you make matters” should governments attempt to influence the structure of production (industrial policy)? • If so, how? • Can public policy increase competition? • Can public policy raise firm level productivity?

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