Abstract
This article investigates empirically the interaction between countries’ Comparative Advantage Following (CAF) development strategy and Aid for Trade (AfT) interventions in influencing the extent of structural change in production. Based on the Generalized Methods of Moments and an unbalanced panel dataset containing 81 countries over the period 1996–2016, the empirical exercise has shown that AfT flows are complementary with the CAF development strategy in generating a higher extent of structural change in production. Thus, higher amounts of AfT flows help promote structural change in production in countries that have adopted the CAF development strategy.
Highlights
The terms “structure” and “structural change” have yet been used with different meanings and interpretations in the economic literature, but they usually refer to long-term and persistent shifts in the sectoral composition of economic systems (Syrquin 2010)
The increasing attention being devoted to the importance of structural change at the regional and international levels is evidenced by the re-engagement of major development agencies and international institutions on long-term structural policies: for example, Justin Yifu Lin, previous Chief economist and Senior Vice President of the World Bank from 2008 to 2012, called for a “new structural economics” as a framework for rethinking development (Lin 2010); the International Monetary Fund (IMF) includes at the core of its agenda the issue of structural transformation and diversification in developing countries with a particular emphasis on Low-Income Countries
3 Empirical model We examine the effect of both Comparative Advantage Following (CAF)/comparative advantage defying (CAD) development strategy, and Aid for Trade (AfT) on structural change in production by drawing from the relatively scant literature on the macroeconomic determinants of structural change (e.g., Dabla-Norris et al 2013; Duarte and Restuccia 2010; McMillan et al 2014; Jha and Afrin 2017; Herrendorf et al 2014; Martins 2018)
Summary
The terms “structure” and “structural change” ( referred to as “structural transformation”) have yet been used with different meanings and interpretations in the economic literature, but they usually refer to long-term and persistent shifts in the sectoral composition of economic systems (Syrquin 2010). The concept of structural change is considered as having several dimensions, including changes in the composition of output, employment, exports and aggregate demand The increasing attention being devoted to the importance of structural change at the regional and international levels is evidenced by the re-engagement of major development agencies and international institutions on long-term structural policies: for example, Justin Yifu Lin, previous Chief economist and Senior Vice President of the World Bank from 2008 to 2012, called for a “new structural economics” as a framework for rethinking development (Lin 2010); the International Monetary Fund (IMF) includes at the core of its agenda the issue of structural transformation and diversification in developing countries with a particular emphasis on Low-Income Countries. Structural change is at the heart of the agenda of Regional development Banks such as the African Development Bank, the Asia Development Bank as well as international institutions such as UNIDO and UNCTAD.
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