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)

Agriculture Manufacturing Non-manufacturing industry Services S Asia Earlier stage of de- agriculturalisation Primary industrialisation Primary industrialisation Earlier stage of tertiarisation E Asia Later stage of de- agriculturalisation Upgrading industrialisation Primary industrialisation Later stage of tertiarisation SS Africa Pre-de- agriculturalisation Primary (or non) industrialisation De-industrialisation Earlier stage of tertiarisation Latin America Later stage of de- agriculturalisation De-industrialisation Primary industrialisation Later stage of tertiarization

Productivity increase Labour productivity growth, 1995–2010 (10%<x) Productivity standstill Labour productivity growth, 1995–2010 (-10%≤x≤10%) Productivity decline Labour productivity growth, 1995–2010 (x<-10%) Note:

EMPIRICAL PATTERNS OF STRUCTURAL TRANSFORMATION (1/2)

1980 1995 2010 1980 1995 2010 1980 1995 2010 1980 1995 2010 10 20 30 40 50 60 70 80 10 20 30 40 Value added share (%) Employment share (%) SSA SA EA LA 1980 1995 2010 1980 1995 2010 1980 1995 2010 1980 1995 2010 4 6 8 10 12 14 16 18 10 15 20 25 30 Value added share (%) Employment share (%) LA EA SSA SA

Agriculture Manufacturing

Source: GGDC 10-sector database.

EMPIRICAL PATTERNS OF STRUCTURAL TRANSFORMATION (2/2)

Non-manufacturing industry Services

Source: GGDC 10-sector database. 1980 1995 2010 1980 1995 2010 1980 1995 2010 1980 1995 2010 10 20 30 40 50 60 70 30 35 40 45 50 55 60 Value added share (%) Employment share (%) LA EA SSA SA 1980 1995 2010 1980 1995 2010 1980 1995 2010 1980 1995 2010 2 4 6 8 10 10 15 20 25 30 35 Value added share (%) Employment share (%) LA EA SSA SA

RELATIVE LABOUR PRODUCTIVITY

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

LABOUR PRODUCTIVITY GROWTH (1/2)

South Asia

Source: GGDC 10-sector database. 1980 1995 2010 1980 1995 2010 1980 1995 2010 1980 1995 2010 10 20 30 40 50 60 70 80 50 100 150 200 250 300 350 Labour productivity (1980=100) Employment share (%) Agriculture Services Manufacturing NMI

Sub-Saharan Africa

Source: GGDC 10-sector database. 1980 1995 2010 1980 1995 2010 1980 1995 2010 1980 19952010 10 20 30 40 50 60 70 50 100 150 200 250 300 350 Labour productivity (1980=100) Employment share (%) Agriculture Services Manufacturing NMI

LABOUR PRODUCTIVITY GROWTH (2/2)

Latin America

1980 1995 2010 1980 1995 2010 1980 1995 2010 1980 1995 2010 10 20 30 40 50 60 70 50 100 150 200 250 300 350 Labour productivity (1980=100) Employment share (%) Agriculture Services Manufacturing NMI

East Asia

1980 1995 2010 1980 1995 2010 1980 1995 2010 1980 1995 2010 10 20 30 40 50 60 70 50 100 150 200 250 300 350 Labour productivity (1980=100) Employment share (%) Agriculture Services Manufacturing NMI

EMPIRICAL PATTERNS OF INCOME INEQUALITY

35 40 45 1970 1980 1990 2000 2010 (Gini, net) 35 40 1970 1980 1990 2000 2010 (Gini, net)

South Asia East Asia

45 50 55 60 65 1970 1980 1990 2000 2010 (Gini, net)

Latin America Sub-Saharan Africa

45 50 55 1970 1980 1990 2000 2010 (Gini, net) Source: WIID.

ST-IG RELATIONSHIP (1/2): SERVICES DRIVEN ST

South Asia East Asia Latin America Sub-Saharan Africa

1970 2010 34 36 38 40 42 44 10 20 30 1980 2010 36 38 40 10 20 30 40 50 1970 2010 52 54 56 58 60 62 64 10 20 30 40 1970 2010 48 50 52 54 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 Latin America Sub-Saharan Africa

Note: Share of employment in Manufacturing (percentage) on the horizontal axis and Net Gini on the vertical axis. Source: GGDC and WIID. 1970 2010 34 36 38 40 42 44 5 10 15 1980 2010 36 38 40 5 10 15 20 1970 2010 52 54 56 58 60 62 64 5 10 2010 1970 48 50 52 54 5 10 15 20

CONCLUSION

Kuznetsian tension: High South Asia Kuznetsian tension: Ambiguous Latin America Sub-Saharan Africa Kuznetsian tension: Low (‘benign’) East Asia Weak Strong Growth-enhancing structural transformation Inequality Increasing Stable or declining

• Heterogeneity in the regions’ experiences
• The present consensus: No universal law
• Kuznetsian multidimensional framework for

understanding ST & IG

• Stronger emphasis needs to be given to:
• Historical context: Initial conditions & subsequent waves
• Endowments
• Political & institutional factors
• ST & IG policies

► This is the approach we take in our OUP book