The Structure of Structural Change and Growth Erol Taymaz Yılmaz Kılıçaslan Department of Economics Middle East Technical University Ankara 06531 Turkey IKD Seminar 26 April 2007

Outline Questions Structure of production Structure of trade Structural convergence Conclusions

Questions In so far as the industrialisation remains an engine of development, structural change and technological growth and modernization, growing manufactured exports are a sign that this engine is working (Lall, 2000: 338).

Questions Structure of industry, structural change and growth Some industries are technologically more dynamic Generate more innovations Diffuse innovations throughout the economy Some industries grow faster Some industries are more productive

Questions Structural change facilitates growth More innovative/dynamic structure Average productivity: If the share of more productive industries increases, the average productivity increases.

Questions Convergence ? Less-developed countries are expected to grow faster by increasing capital intensity, and by adopting (transferring) technologies generated by developed countries What about the structure of the industry? Any convergence in structure?

Questions Is there any relationship between structure, structural change and growth? What is the contribution of structural change to productivity growth?

Data UNIDO Industrial Statistics and Industrial Supply and Demand (Trade) Databases 40+ countries Production: 1965-1999 period, 3-digit industries Trade: 1980-1999 period, 3-digit industries

Structural change and productivity Labor productivity at the manufacturing industry level

Structural change and productivity Within and between components of labor productivity growth

Structural change and productivity Contribution of structural change in the period 1965-99 High income countries: almost no effect Low income countries: very small effect Fast growing countries: not very high, but varies between countries: Korea: almost no effect Ireland: not negligible (27 % in 1965-79, 16 % in 1980-99) Turkey: negative after 1980! Within-industry productivity growth dominates between-industry productivity growth

Structure of production 3-sector classification High tech, medium tech, low tech (OECD) Classification of countries Low-income, mid-income, high-income (World Bank) Growth performance (fast growing countries, Indonesia, Ireland, Korea, Malaysia, Malta, Philippines, Singapore and Turkey) Average value added shares for 5-year periods 1965-69, 1970-74, 1975-79, 1980-84, 1985-89, 1990-94, 1995-99

Structure of production MT Ethiopia India Kenya Pakistan Tanzania Zimbabwe HT LT

Structure of production

Structure of production

Structure of production

Structure of production

Structure of production

Structure of production There is a strong relationship between structure and growth: HT and MT sectors have a larger share in developed countries Developing countries move towards MT industries Fast growing countries achieve the fastest structural change and move towards HT industries

Structure of exports

Structure of imports

Structure of exports

Structure of imports

Structure of exports

Structure of imports

Structural convergence Any convergence in industrial structure? Do the structures of industry in developed and developing countries get “similar”? Apply factor analysis to identify “ideal-typical” structures 5-year averages

Structural convergence

Structural convergence Three groups of countries Club 1: Industrialized countries Club 2: Less industrialized countries Club 3: Transition club All clubs change their structures but there is no structural convergence. Some countries switch from one club to another over time.

Club 1

Club 2

Club 3

Industrial structure, 1965-69

Industrial structure, 1995-99

Export structure, 1980-84

Export structure, 1995-99

Conclusions Strong correlation between industrial structure and performance Strong correlation between the speed and direction of structural change and industrial performance

Conclusions Industry structure changes in both developed and developing countries There is no structural convergence Trade structure is more specialized Developing country structure is more specialized Persistence in international division of labor

Thanks….