Abstract
The conventional view of structural transformation is informed by three stylized facts of economic development: (i) all economies exhibit declining employment in agriculture, (ii) all economies exhibit a hump-shaped share of employment in industry, and (iii) all economies exhibit an increasing share of employment in services. In this paper, I show that this presumed path of structural transformation may no longer be the route to economic development in low-income economies. Classifying economies as either structurally developed, structurally developing, or structurally underdeveloped, I observe a different path of structural transformation in structurally underdeveloped economies in which workers are moving directly from agriculture to nonbusiness services, which as a sector does not have the same productivity gains as manufacturing. I also show that the mainstream approach is unable to explain the patterns of structural transformation observed in low-income developing economies. This suggests the need to rethink the theoretical premises behind much of the mainstream approach to structural transformation and to identify alternate causal mechanisms to explain the different types of structural transformation underway in the developing world.
Highlights
Economists have long searched for patterns that relate successful economic development to structure and policy (Syrquin and Chenery 1989)
The conventional view of structural transformation is informed by three stylized facts of economic development: (i) all economies exhibit declining employment in agriculture; (ii) economies at an early stage of the process of structural transformation exhibit a hump-shaped share of employment in industry, whereas this share is decreasing for economies at a more advanced stage; and (iii) all economies exhibit an increasing share of employment in services
Classifying economies as either structurally developed, developing, or underdeveloped, I observe a different path of structural transformation in structurally underdeveloped economies, where workers are moving directly from agriculture to nonbusiness services, which as a sector does not have the same productivity gains as manufacturing
Summary
Economists have long searched for patterns that relate successful economic development to structure and policy (Syrquin and Chenery 1989). This comparative approach in development economics was initiated by Simon Kuznets and predicated on “the existence of common, transnational factors and a mechanism of interactions among nations that will produce some systematic order in the way modern economic growth can be expected to spread around the world” (Kuznets 1959, 170). One of the most striking findings of this comparative approach to economic development was the “universal inverse association of income and the share of agriculture in income and employment” (Syrquin and Chenery 1989, 172).
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