THE DEVELOPERS DILEMMA A Survey of Structural Transformation and - PowerPoint PPT Presentation

THE DEVELOPER’S DILEMMA A Survey of Structural Transformation and Inequality Dynamics Armida Alisjahbana, Kunal Sen, Kyunghoon Kim, Andy Sumner and Arief Yusuf

INTRODUCTION • Structural transformation (ST) as the engine of economic growth • Kuznets, Lewis, Kaldor, Chenery, Hirschman, Myrdal, and Thirwall • Special characteristics of the manufacturing sector • Developer’s dilemma • Structural transformation that drives economic development has a tendency to put upward pressure on income inequality levels if not addressed • Recent trends in many developing countries • Service-centred ST and premature deindustrialisation • Increasing inequality and slow poverty reduction

KUZNETS REVISITED: BEYOND THE INVERTED-U • The importance of linking structural transformation , within/between urban- rural inequality , political/societal changes , and policies • Upswing: “[E]ven if the differential in per capita income between the two sectors remains constant and the intra-sector distributions are identical for the two sectors, the mere shift in the proportions of numbers produces slight but significant changes in the distribution for the country as a whole ” (1955) . • Downswing: Labour & political organisation → Demand for wage increases & redistribution • Additionally, other important factors may include: • Global factors: e.g. world interest rates, commodity prices, terms of trade (Galbraith, 2011) • Domestic factors: e.g. economic liberalisation, land inequality (Oyvat, 2016; Williamson, 2001) • T echnological factors: e.g. mechanisation, automation (Roine and Waldenström, 2014)

KEY QUESTIONS • After revisiting Kuznets’ work, we derive the following questions: • What are the trends in structural transformation (ST)? • What are the trends in inclusive growth ? • What policies have been put in place to shape ST, inequality and inclusive growth? • What is the political economy of ST, inequality and employment? • What is the future trajectory of the ST – inequality – inclusive growth relationship?

CLASSIFYING PATTERNS OF STRUCTURAL TRANSFORMATION (1995 – 2010) Non-manufacturing Agriculture Manufacturing Services industry Earlier stage of de- Primary Primary Earlier stage of S Asia agriculturalisation industrialisation industrialisation tertiarisation Later stage of de- Upgrading Primary Later stage of E Asia agriculturalisation industrialisation industrialisation tertiarisation SS Pre-de- Primary (or non) Earlier stage of De-industrialisation Africa agriculturalisation industrialisation tertiarisation Latin Later stage of de- Primary Later stage of De-industrialisation America agriculturalisation industrialisation tertiarization Note: Labour productivity growth, 1995 – 2010 (10%<x) Productivity increase Labour productivity growth, 1995 – 2010 (- 10%≤x≤10%) Productivity standstill Labour productivity growth, 1995 – 2010 (x<-10%) Productivity decline

EMPIRICAL PATTERNS OF STRUCTURAL TRANSFORMATION (1/2) Agriculture Manufacturing Employment share (%) Employment share (%) 80 18 SSA 1980 1995 EA 70 1980 LA 2010 16 SA 2010 1980 1995 60 1995 1995 14 1980 2010 50 1995 EA 1980 2010 12 2010 40 2010 10 1980 SA 30 1995 1980 LA 1995 8 20 1980 2010 6 10 2010 SSA 1995 0 4 0 10 20 30 40 10 15 20 25 30 Value added share (%) Value added share (%) Source: GGDC 10-sector database.

EMPIRICAL PATTERNS OF STRUCTURAL TRANSFORMATION (2/2) Non-manufacturing industry Services Employment share (%) Employment share (%) 10 70 1980 2010 2010 2010 LA 60 8 1995 1995 LA 2010 1995 50 EA 6 1980 40 2010 1980 SSA 2010 4 1995 1995 SA 30 1980 1980 1995 2010 1995 EA 2 2010 20 SSA 1980 1995 1980 SA 1980 0 10 10 15 20 25 30 35 30 35 40 45 50 55 60 Value added share (%) Value added share (%) Source: GGDC 10-sector database.

RELATIVE LABOUR PRODUCTIVITY Ratio of agricultural labour productivity to non-agricultural labour productivity (%) 35 2010 30 25 20 1995 LA 1995 1980 SA 2010 15 2010 1980 SSA 10 2010 1995 5 1980 1995 1980 EA 0 6 6,5 7 7,5 8 8,5 9 9,5 10 Overall labour productivity (natural log) Source: GGDC 10-sector database.

LABOUR PRODUCTIVITY GROWTH (1/2) South Asia Sub-Saharan Africa Employment share (%) Employment share (%) 1980 80 70 1995 2010 1980 70 Agriculture 60 Agriculture 1995 60 50 50 2010 40 19952010 40 30 Services 2010 30 Services 1995 20 1980 1980 20 2010 1995 Manufacturing 1980 1995 2010 1980 10 1995 10 2010 Manufacturing 2010 1980 NMI 1980 NMI 0 0 1995 50 100 150 200 250 300 350 50 100 150 200 250 300 350 Labour productivity (1980=100) Labour productivity (1980=100) Source: GGDC 10-sector database. Source: GGDC 10-sector database.

LABOUR PRODUCTIVITY GROWTH (2/2) East Asia Latin America Employment share (%) Employment share (%) 70 70 1980 2010 60 60 1995 1995 Services 50 50 Agriculture 1980 2010 40 40 2010 1980 1995 30 30 Services Agriculture 1995 2010 Manufacturing 1995 20 1980 20 1980 1980 2010 2010 Manufacturing 1995 10 10 2010 2010 NMI 1980 1995 NMI 1995 1980 0 0 50 100 150 200 250 300 350 50 100 150 200 250 300 350 Labour productivity (1980=100) Labour productivity (1980=100)

EMPIRICAL PATTERNS OF INCOME INEQUALITY South Asia East Asia (Gini, net) (Gini, net) 45 40 40 35 35 1970 1980 1990 2000 2010 1970 1980 1990 2000 2010 Sub-Saharan Africa Latin America (Gini, net) (Gini, net) 65 55 60 55 50 50 45 45 1970 1980 1990 2000 2010 1970 1980 1990 2000 2010 Source: WIID.

ST-IG RELATIONSHIP (1/2) : SERVICES DRIVEN ST South Asia East Asia 44 40 42 2010 2010 40 38 38 1980 36 1970 34 36 10 20 30 10 20 30 40 50 Sub-Saharan Africa Latin America 64 54 62 60 52 58 56 50 1970 2010 54 2010 1970 52 48 10 20 30 40 10 20 30 40 50 60 70 Note: Share of employment in Services (percentage) on the horizontal axis and Net Gini on the vertical axis. Source: GGDC and WIID.

ST-IG RELATIONSHIP (2/2) : MANUFACTURING DRIVEN ST South Asia East Asia 40 44 42 2010 2010 40 38 38 1980 36 1970 36 34 5 10 15 20 5 10 15 Sub-Saharan Africa Latin America 64 54 62 60 52 58 1970 56 50 2010 54 1970 2010 52 48 5 10 5 10 15 20 Note: Share of employment in Manufacturing (percentage) on the horizontal axis and Net Gini on the vertical axis. Source: GGDC and WIID.

CONCLUSION • Heterogeneity in the regions’ experiences Kuznetsian tension: • The present consensus: No universal law High Increasing • Kuznetsian multidimensional framework for South Asia understanding ST & IG Inequality • Stronger emphasis needs to be given to: • Historical context: Initial conditions & subsequent waves Kuznetsian tension: Kuznetsian tension: Low (‘benign’) Ambiguous • Endowments Stable or declining Latin America • Political & institutional factors Sub-Saharan Africa East Asia • ST & IG policies Weak Strong ► This is the approach we take in our OUP book Growth-enhancing structural transformation