The Recent Growth Boom in Developing Economies: A Structural Change Perspective
Growth has accelerated in a wide range of developing countries over the last couple of decades, resulting in an extraordinary period of convergence with the advanced economies. We analyze this experience from the lens of structural change – the reallocation of labor from low- to high-productivity sectors. Patterns of structural change differ greatly in the recent growth experience. In contrast to the East Asian experience, none of the recent growth accelerations in Latin America, Africa, or South Asia was driven by rapid industrialization. Beyond that, we document that recent growth accelerations were based on either rapid within-sector labor productivity growth (Latin America) or growth-increasing structural change (Africa), but rarely both at the same time. The African experience is particularly intriguing, as growth-enhancing structural change appears to have come typically at the expense of declining labor productivity growth in the more modern sectors of the economy. We explain this anomaly by arguing that the forces that promoted structural change in Africa originated on the demand side, through either external transfers or increase in agricultural incomes. In contrast to Asia, structural change was the result of increased demand for goods and services produced in the modern sectors of the economy rather than productivity improvements in these sectors.
We acknowledge Peixun Fang for excellent research assistance. Diao and McMillan gratefully acknowledge the support of the CGIAR’s research program Policies, Institutions, and Markets (PIM) led by the International Food Policy Research Institute. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
- Developing countries in Latin America and Africa have not followed the rapid, export-oriented industrialization strategy that was...