Margaret McMillan IFPRI BOOK LAUNCH Structural Change, Fundamentals, and Growth: A Framework and Case Studies Edited by Margaret McMillan, Dani Rodrik, and Claudia Sepúlveda MAY 11, 2017 - 12:15 PM TO 01:45 PM EDT

1. STRUCTURAL CHANGE, FUNDAMENTALS, AND GROWTH
A Framework and Case Studies
– Edited by Margaret McMillan, Dani Rodrik and Claudia Sepúlveda
Margaret McMillan
Development Strategies and Governance Division, IFPRI
May 11, 2017

2. Brief Overview of Today’s Event
 First, thank you all for taking the time to come, we very much appreciate
your participation.
 I will begin by introducing the book and providing some highlights from the
country studies
 Professor Dani Rodrik will follow me with an extended discussion of the
implications of the findings in the book and some updated results

4. Acknowledgements
 This volume would not have made it to press without the tireless
dedication of Claudia Sepulveda, Lead Economist at the World Bank.
 The volume is the outcome of a project funded by the World Bank
Knowledge for Change Program.
 We acknowledge the assistance of Leita Jones and Gabriela Calderón in
helping us to organize the workshop and produce this volume.
 We are also grateful for the assistance of the Publication Review
Committee at IFPRI and the comments received from anonymous
reviewers.
 The authors acknowledge the support of the CGIAR Research Program
on Policies, Institutions, and Markets (PIM) led by IFPRI.
 The book was thoughtfully and tirelessly edited by Laura Wallace.

5. Acknowledgements
 Our deepest appreciation goes to all of the scholars who contributed to this
volume. This includes:
Adedeji Adeyinka, Reshad N. Ahsan, Sergio Firpo, Rémi Jedwab,
Keith Jefferis, Brian McCaig, Devashish Mitra, Robert Darko
Osei, Nina Pavcnik, Renan Pieri, Danielle Resnick, Sheu Salau,
James Thurlow and Dietrich Vollrath.
 Finally, we would like to thank Xinshen Diao and Ann Harrison for their
encouragement and support throughout the process.

6. Structural Change Fundamentals and Growth: the
Framework (1)
 Basic idea is that labor productivity growth – or growth in output per worker
– can be decomposed into two distinct components.
 Within sector labor productivity growth: this is likely to be familiar to
everyone in the audience and is the growth in output per worker that
comes from investment in inputs such as land and capital or from
innovations within sectors – think improved seeds in agriculture or worker
training in manufacturing/services.
 Labor productivity growth from structural change: this may be less familiar
and is the labor productivity growth that comes about when labor is
reallocated across sectors that differ in labor productivity.

7. Labor productivity growth from structural change:
Moving labor from agriculture to non-agriculture
0
200
400
600
800
1,000
1,200
1,400
1,600
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Sector-relativelaborproductivity,
Economywidelaborproductivity=100
Share of total employment (%)
Agriculture (62.3%) Personal services (6.1%) Trade services (16.2%)
Construction (2.8%) Manufacturing (7%) Transport services (2.7%)
Business services (2.6%) Utilities (0.5%) Mining (1.0%)
1,681
35 69 111
162
484
325
171
422
Economywide labor productivity = 100
Note: Africa in 2010.
Source: Diao, Harttgen and McMillan 2017.

8. Structural Change, Fundamentals and Growth: the
Framework (2)
In summary, increasing labor productivity involves two distinct sets of
challenges:
 The ‘fundamentals challenge’ associated with investments in things like
human capital, health and infrastructure that raises within sector
productivity growth but which takes time and;
 The ‘structural transformation challenge’ associated with employment
expansion in relatively more productive sectors.
The two are related but not the same and typically require different sets of
policies.

9. Structural Change Fundamentals and Growth: A Visual of the
Framework

10. Case Studies
 Authors were asked to apply this framework to individual countries in order
to:
oWork with local researchers to identify the relative importance of
structural change vs within sector productivity growth
oIdentify to the extent possible reasons for the patterns observed at the
country level
 Countries included are: Brazil, Botswana, Ghana, Nigeria, Zambia, India
and Vietnam.
 I will highlight just a few of the most interesting results and in so doing
hope to entice you to read the book!

11. Brazil reaped benefits of growth from structural change during
the ISI period, but growth is low over the recent periods
Authors: Firpo and Pieri
-20 0 20 40 60 80
1995-2005
1980-1994
1965-1979
1950-1964
Percentage
Economywide labor productivity growth within sectors and from structural
change in different periods (growth rate in the entire period)
Growth within sector Structural change

12. Structural change pushed Botswana to middle income status but
Botswana is stuck with a tough ‘fundamentals’ problem in agriculture
Authors: Jefferis, McCaig, McMillan and Verduzco
0
100
200
300
400
500
600
700
800
900
1000
1100
1200
0 10 20 30 40 50 60 70 80 90 100
Sector-relativelaborproductivity,Economywidelabor
productivity=100
Share of total employment (%)
Labor productivity gaps in 1970; The economywide
labor productivity was $5,200 in 2005 ppp
Agriculture (83.7%)
Personal services (4.3%)
Transport services (1.1%)
Government services (4.4%)
Manufacturing (12%)
Utilities (0.2%)
Business services (1.1%)
Trade services (1.2%)
Mining (1.0%)
Construction (1.7%)
168
24 42
233
313
338
666
1241
1224
1164
0
100
200
300
400
500
600
700
800
900
1000
1100
1200
0 20 40 60 80 100
Sector-relativelaborproductivity,Economywidelabor
productivity=100
Share of total employment (%)
Labor productivity gaps in 2010; The economywide
labor productivity was $32,600 in 2005 ppp
Agriculture (39.1%)
Government services (17.1%)
Trade services (19.8%)
Manufacturing (6.6%)
Transport services (3.1%)
Utilities (0.3%)
Business services (7.1%)
Construction (2.6%)
Personal services (2.7%)
Mining (1.6)
100
7
84
116
179
205
220
1207
274
273

13. Since 1992 Ghana has positive growth from
structural change but it is based on services
Authors: Jedwab and Osei

14. In Nigeria, productivity growth is mostly a result of structural
change, but productivity growth within manufacturing and
modern services is negative
Authors: Adeyinka, Salau and Vollrath

15. Zambia: uneven experience and structural change without
transformation
Authors: Resnick and Thurlow

16. India: limited role for structural change, little expansion of
modern manufacturing and significant differences across
states
 Gujarat and Maharashtra are the
states with the highest labor
productivity growth but for different
reasons
 Gujarat invested in fundamentals
like infrastructure
 Mumbai is in Maharashtra and
formal business services played a big
role but limited employment prospects
in this sector
Authors: Ahsan and Mitra

17. Vietnam is the only country in our sample that benefited significantly from
an expansion in modern manufacturing, but more than 50% of the labor
force is still in relatively low productive agriculture
Authors: McCaig and Pavcnik
0
100
200
300
400
500
600
700
800
900
1000
1100
1200
0 10 20 30 40 50 60 70 80 90 100
Sector-relativelaborproductivity,Ecnomywidelabor
productivity=100
Share of total employment (%)
Large labor productivity gaps in 1990; The economywide
labor productivity was 4.5m dong in 1994 price
Agriculture (73%)
O. Private & Govt services (7%)
Manufacturing (8%)
Transport services (2%)
Construction (2%)
Trade services (6%)
Mining (1%)
Utilities (0.3%)
Business services (0.5%)
180
44
156
198
266
619
388
1366
348
0
100
200
300
400
500
600
700
0 10 20 30 40 50 60 70 80 90 100
Sector-relativelaborproductivity,Economywidelabor
productivity=100
Share of total employment (%)
Labor productivity gaps becoming smaller in 2008; The
economywide labor productivity was 10.9m dong in
1994 price
Agriculture (53%)
O. Private & Govt services (9%)
Trade services (14%)
Transport services (3%)
Construction (5%)
Manufacturing (14%)
Mining (1%)
Business services (1%)
Utilities (0.5%)
147
34
115
158
163
605
477
548
181

18. Summarizing the contributions of structural change and within
sector growth to economywide labor productivity growth in case
study countries (average annual growth rates, percentage)
-5.0 -3.0 -1.0 1.0 3.0 5.0 7.0 9.0
1990–2000
2000–2008
1990–2000
2000–2010
1992–2000
2000–2006
2006–2010
1996–1999
1999–2005
2005–2009
1991–2002
2002–2010
1990–1999
2000–2004
1995–2005
VietnamBotswanaGhanaNigeriaZambiaIndiaBrazil
Growth within sectors Structural change

19. Where does this leave us?
 Apart from Vietnam, we have not found any evidence of East Asian style
miracles e.g. rapid structural change based on the expansion of
manufacturing for export.
 The implication seems to be that the rapid growth we saw in East Asia was
more of an exception than the norm.
 For more insights on these issues and for some updated results, I now turn
the floor back to Professor Dani Rodrik