1. Structural Change: Pace, Patterns and Determinants
ECA
Structural Change: Pace, Patterns and Determinants
Pedro Martins
Economic Commission for Africa
5 December 2017

2. ECA Overview Research undertaken in two stages: Main contributions:
Assess pace and sectoral pattern of structural change in the world’s regions and sub-regions.
Investigate the determinants of structural change.
Main contributions:
Comprehensive dataset (169 countries), representative regional estimates and novel sub-regional perspective.
Original empirical exercise on structural change (accelerations), insights on how to enhance it.

3. ECA Background Context Definition of structural change
Strong economic growth since early 2000s, but concerns about its inclusiveness and sustainability.
Renewed interest in the study of structural change (as driver of sustainable growth).
Definition of structural change
“Labour productivity gains accrued by relocating labour from lower-productivity to higher-productivity sectors.”
This paper also assesses impact of demographic change and employment rates on economic performance.

4. Part I: Pace and Pattern

5. Demographic structure
Methodology
ECA
Shapley decompositions
Output per capita
Δ(Y/N)
Output per worker
Δ(Y/E)
Within-sector effects
Role of each sector
Between-sector effects
Employment rate
Δ(E/A)
Demographic structure
Δ(A/N)

6. Demographic structure
Methodology
ECA
Shapley decompositions
Output per capita
Δ(Y/N)
Output per worker
Δ(Y/E)
Within-sector effects
Role of each sector
Between-sector effects
Employment rate
Δ(E/A)
Demographic structure
Δ(A/N)

7. Demographic structure
Methodology
ECA
Shapley decompositions
Output per capita
Δ(Y/N)
Output per worker
Δ(Y/E)
Within-sector effects
Role of each sector
Between-sector effects
Employment rate
Δ(E/A)
Demographic structure
Δ(A/N)

8. Demographic structure
Methodology
ECA
Shapley decompositions
Output per capita
Δ(Y/N)
Output per worker
Δ(Y/E)
Within-sector effects
Role of each sector
Between-sector effects
Employment rate
Δ(E/A)
Demographic structure
Δ(A/N)

9. ECA Data Data compilation Consolidated dataset
Employment (ILO): 174 countries, 14 sectors.
Gross value added (UNSD): 212 countries, 7 sectors.
Population (UNPD): 233 countries & territories.
Consolidated dataset
169 countries (99.9% output, 98.7% population).
4 world regions and 13 sub-regions.
7 sectors of economic activity (ISIC).
2 sub-periods ( and ).

10. Economic structure
ECA
Structure of output & employment

11. ECA Economic structure
Changes in employment & labour productivity gaps

12. Results
ECA
Decomposition of GVA per capita growth (regions)

13. Results
ECA
Decomposition of GVA per capita growth (sub-regions)

14. Part II: Determinants

15. ECA Methodology Econometric estimation Regression specification
Panel fixed-effects to account for time-invariant country characteristics.
Principal component analysis to isolate common elements.
Robustness tests to assess sensitivity of results.
Regression specification
Structural change = f (initial conditions, macro stability, trade & exchange rate, financial capital, human capital, physical capital, governance)

16. Data
ECA
Dimension
Variable

17. ECA Data Dimension Variable Dependent variable
Between-sector effect (% contribution)

18. ECA Data Dimension Variable Dependent variable
Between-sector effect (% contribution)
Initial conditions
Employment in agriculture (% total)
Mining & utilities (% GVA)

19. ECA Data Dimension Variable Dependent variable
Between-sector effect (% contribution)
Initial conditions
Employment in agriculture (% total)
Mining & utilities (% GVA)
Macroeconomic stability
Current account balance (% GDP)
General government gross debt (% GDP)
General government net lending/borrowing (% GDP)
Inflation, consumer prices (% change)

20. ECA Data Dimension Variable Dependent variable
Between-sector effect (% contribution)
Initial conditions
Employment in agriculture (% total)
Mining & utilities (% GVA)
Macroeconomic stability
Current account balance (% GDP)
General government gross debt (% GDP)
General government net lending/borrowing (% GDP)
Inflation, consumer prices (% change)
Trade & exchange rate
Net barter terms of trade (index)
Trade (% GDP)
Real effective exchange rate (index)

21. ECA Data Dimension Variable Dependent variable
Between-sector effect (% contribution)
Initial conditions
Employment in agriculture (% total)
Mining & utilities (% GVA)
Macroeconomic stability
Current account balance (% GDP)
General government gross debt (% GDP)
General government net lending/borrowing (% GDP)
Inflation, consumer prices (% change)
Trade & exchange rate
Net barter terms of trade (index)
Trade (% GDP)
Real effective exchange rate (index)
Financial capital
Domestic credit to private sector (% GDP)
Real interest rate (%)

22. ECA Data Dimension Variable Dependent variable
Between-sector effect (% contribution)
Initial conditions
Employment in agriculture (% total)
Mining & utilities (% GVA)
Macroeconomic stability
Current account balance (% GDP)
General government gross debt (% GDP)
General government net lending/borrowing (% GDP)
Inflation, consumer prices (% change)
Trade & exchange rate
Net barter terms of trade (index)
Trade (% GDP)
Real effective exchange rate (index)
Financial capital
Domestic credit to private sector (% GDP)
Real interest rate (%)
Human capital
Gross enrolment ratio in secondary (%)
Gross enrolment ratio in tertiary (%)
Life expectancy at birth
Mean years of schooling

23. ECA Data (cont.) Dimension Variable Physical capital
Assess to electricity (% population)
Assess to improved sanitation facilities (% population)
Assess to improved water source (% population)
Internet users (per 100 people)
Generation capacity (MW per capita)
Road density (km per sq. km)

24. ECA Data (cont.) Dimension Variable Physical capital
Assess to electricity (% population)
Assess to improved sanitation facilities (% population)
Assess to improved water source (% population)
Internet users (per 100 people)
Generation capacity (MW per capita)
Road density (km per sq. km)
Governance
Political regime (polity2)
Political rights & Civil liberties (average score)
Voice & accountability
Political stability & Absence from violence/terrorism
Government effectiveness
Regulatory quality
Rule of law
Control of corruption

25. Results
ECA
Principal component analysis
Proxy variable
Variables

26. ECA Results Principal component analysis Proxy variable Variables
Human capital (pc)
Secondary education
Tertiary education
Life expectancy
Years of schooling

27. ECA Results Principal component analysis Proxy variable Variables
Human capital (pc)
Secondary education
Tertiary education
Life expectancy
Years of schooling
Physical capital (pc)
Access to electricity
Access to sanitation
Access to water

28. ECA Results Principal component analysis Proxy variable Variables
Human capital (pc)
Secondary education
Tertiary education
Life expectancy
Years of schooling
Physical capital (pc)
Access to electricity
Access to sanitation
Access to water
Governance (pc)
Voice & accountability
Political stability
Government effectiveness
Regulatory quality
Rule of law
Control of corruption

29. Results
ECA
Panel fixed-effects (full sample)
Countries
R-squared

30. ECA Results Panel fixed-effects (full sample) FE Employment in agric.
0.09
(0.01)***
Physical capital (pc)
0.86
(0.16)***
Countries
158
R-squared
0.24

31. ECA Results Panel fixed-effects (full sample) FE Employment in agric.
0.09
0.10
(0.01)***
Physical capital (pc)
0.86
0.46
(0.16)***
(0.17)***
Human capital (pc)
0.42
(0.10)***
Countries
158
R-squared
0.24
0.31

32. ECA Results Panel fixed-effects (full sample) FE Employment in agric.
0.09
0.10
(0.01)***
Physical capital (pc)
0.86
0.46
0.60
(0.16)***
(0.17)***
Human capital (pc)
0.42
(0.10)***
Years of schooling
0.25
(0.07)***
Countries
158
R-squared
0.24
0.31
0.30

33. ECA Results Panel fixed-effects (full sample) FE Employment in agric.
0.09
0.10
(0.01)***
Physical capital (pc)
0.86
0.46
0.60
0.75
(0.16)***
(0.17)***
(0.15)***
Human capital (pc)
0.42
(0.10)***
Years of schooling
0.25
(0.07)***
Tertiary education
0.02
(0.00)***
Countries
158
R-squared
0.24
0.31
0.30

34. ECA Results Panel fixed-effects (full sample) FE Employment in agric.
0.09
0.10
(0.01)***
Physical capital (pc)
0.86
0.46
0.60
0.75
(0.16)***
(0.17)***
(0.15)***
Human capital (pc)
0.42
(0.10)***
Years of schooling
0.25
(0.07)***
Tertiary education
0.02
(0.00)***
Access to water
(0.01)**
Countries
158
R-squared
0.24
0.31
0.30

35. ECA Results Panel fixed-effects (full sample) FE Employment in agric.
0.09
0.10
0.07
(0.01)***
Physical capital (pc)
0.86
0.46
0.60
0.75
(0.16)***
(0.17)***
(0.15)***
(0.13)***
Human capital (pc)
0.42
0.19
(0.10)***
(0.08)**
Years of schooling
0.25
(0.07)***
Tertiary education
0.02
(0.00)***
Access to water
(0.01)**
Countries
158 86
R-squared
0.24
0.31
0.30
0.29

36. ECA Results Panel fixed-effects (full sample) FE RR
Employment in agric.
0.09
0.10
0.07
0.11
(0.01)***
Physical capital (pc)
0.86
0.46
0.60
0.75
(0.16)***
(0.17)***
(0.15)***
(0.13)***
Human capital (pc)
0.42
0.19
0.29
(0.10)***
(0.08)**
Years of schooling
0.25
(0.07)***
Tertiary education
0.02
(0.00)***
Access to water
(0.01)**
Countries
158 86
R-squared
0.24
0.31
0.30
0.48

37. ECA Results Panel fixed-effects (full sample) FE RR QR
Employment in agric.
0.09
0.10
0.07
0.11
(0.01)***
Physical capital (pc)
0.86
0.46
0.60
0.75
0.38
(0.16)***
(0.17)***
(0.15)***
(0.13)***
(0.14)***
Human capital (pc)
0.42
0.19
0.29
0.30
(0.10)***
(0.08)**
(0.05)***
Years of schooling
0.25
(0.07)***
Tertiary education
0.02
(0.00)***
Access to water
(0.01)**
Countries
158 86
R-squared
0.24
0.31
0.48

38. Results
ECA
Panel fixed-effects (by region)
Countries
R-squared

39. ECA Results Panel fixed-effects (by region) Africa
Africa
Employment in agriculture
0.10
(0.03)***
Mining & utilities VA
-0.07
(0.02)***
Physical capital (pc)
0.78
(0.25)***
Countries 47
R-squared
0.34

40. ECA Results Panel fixed-effects (by region) Africa
Africa
Employment in agriculture
0.10
(0.03)***
Mining & utilities VA
-0.07
(0.02)***
Physical capital (pc)
0.78
(0.25)***
Secondary education
0.03
(0.01)**
Countries 47
R-squared
0.34
0.33

41. ECA Results Panel fixed-effects (by region) Africa
Africa
Employment in agriculture
0.10
(0.03)***
Mining & utilities VA
-0.07
(0.02)***
Physical capital (pc)
0.78
(0.25)***
Secondary education
0.03
(0.01)**
Human & physical capital (pc)
0.51
(0.18)***
Countries 47
R-squared
0.34
0.33

42. ECA Results Panel fixed-effects (by region) Africa Asia
Africa
Asia
Employment in agriculture
0.10
0.09
(0.03)***
(0.02)***
Mining & utilities VA
-0.07
Physical capital (pc)
0.78
0.55
(0.25)***
(0.25)**
Secondary education
0.03
(0.01)**
Human & physical capital (pc)
0.51
(0.18)***
Tertiary education
0.02
Countries 47 42
R-squared
0.34
0.33
0.28

43. ECA Results Panel fixed-effects (by region) Africa Asia
Africa
Asia
Employment in agriculture
0.10
0.09
(0.03)***
(0.02)***
Mining & utilities VA
-0.07
Physical capital (pc)
0.78
0.55
(0.25)***
(0.25)**
Secondary education
0.03
(0.01)**
Human & physical capital (pc)
0.51
0.57
(0.18)***
(0.15)***
Tertiary education
0.02
Countries 47 42
R-squared
0.34
0.33
0.28
0.29

44. ECA Results Panel fixed-effects (by region) Africa Asia LAC
Africa
Asia
LAC
Employment in agriculture
0.10
0.09
(0.03)***
(0.02)***
Mining & utilities VA
-0.07
Physical capital (pc)
0.78
0.55
(0.25)***
(0.25)**
Secondary education
0.03
(0.01)**
Human & physical capital (pc)
0.51
0.57
(0.18)***
(0.15)***
Tertiary education
0.02
0.05
(0.02)**
Real exchange rate
0.01
(0.00)**
Countries 47 42 26
R-squared
0.34
0.33
0.28
0.29
0.44

45. ECA Results Panel fixed-effects (by region) Africa Asia LAC Other
Africa
Asia
LAC
Other
Employment in agriculture
0.10
0.09
0.12
(0.03)***
(0.02)***
(0.01)***
Mining & utilities VA
-0.07
Physical capital (pc)
0.78
0.55
(0.25)***
(0.25)**
Secondary education
0.03
(0.01)**
Human & physical capital (pc)
0.51
0.57
(0.18)***
(0.15)***
Tertiary education
0.02
0.05
0.01
(0.02)**
(0.00)***
Real exchange rate
(0.00)**
(0.00)*
Political regime
Countries 47 42 26 43
R-squared
0.34
0.33
0.28
0.29
0.44
0.68

46. Conclusions

47. ECA Conclusions Key findings Policy implications
Pace: accelerated in the 2000s, but still comparatively less important than within-sector effects.
Pattern: key driver has been the relocation of labour from agriculture to the services sectors.
Determinants: pace of structural change significantly shaped by human and physical capital accumulation.
Policy implications
Investments in education and economic infrastructure are crucial to accelerate structural change.
Governance?

48. Structural Change: Pace, Patterns and Determinants
ECA
Structural Change: Pace, Patterns and Determinants
Pedro Martins
Economic Commission for Africa