Dynamics of Structural Transformation: Understanding the Key Factors That Drive Innovative Activities in Selected Asian and African Countries

This paper develops a metric of structural transformation that can account for the production of new varieties of goods embodying advancements in technological know-how and design. Our measure captures the dynamics of an economy’s transformation and can be viewed as an extension of the static measure developed by Hausmann and Klinger (2006). We apply this measure to four digit level sitc trade data of China, Malaysia and Ghana over the period 1962-2000. The results show the rapid transformation of the Chinese economy is characterized by two important factors: the high proximity of its export basket to the three main industrial clusters – capital goods, consumer durable goods, and intermediate inputs, and the increase in the values of the new goods belonging to these three clusters. Malaysia exhibits a similar but more modest pattern. In contrast, the structure of the Ghanaian economy appears unchanged over the entire 1962-2000 period. This economy is dominated by primary goods clusters, and the values of the goods in these clusters have remained relatively low. We also discuss qualitatively the role of policies and institutions in spurring transformation in the three countries.