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Structural Change and Cross-Country Growth Empirics

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  • Markus Eberhardt
  • Francis Teal

Abstract

One of the most striking features of economic growth is the process of structural change whereby the share of agriculture in GDP decreases as countries develop. The cross-country growth literature typically estimates an aggregate homogeneous production function or convergence regression model that abstracts from the process of structural change. In this paper, we investigate the extent to which assumptions about aggregation and homogeneity matter for inferences regarding the nature of technology differences across countries. Using a unique World Bank dataset, we estimate production functions for agriculture and manufacturing in a panel of 40 developing and developed countries for the period from 1963 to 1992. We empirically model dimensions of heterogeneity across countries, allowing for different choices of technology within both sectors. We argue that heterogeneity is important within sectors across countries implying that an analysis of aggregate data will not produce useful measures of the nature of the technology or productivity. We show that many of the puzzling elements in aggregate cross-country empirics can be explained by inappropriate aggregation across heterogeneous sectors. Copyright 2013, Oxford University Press.

Suggested Citation

  • Markus Eberhardt & Francis Teal, 2013. "Structural Change and Cross-Country Growth Empirics," World Bank Economic Review, World Bank Group, vol. 27(2), pages 229-271.
  • Handle: RePEc:oup:wbecrv:v:27:y:2013:i:2:p:229-271
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    File URL: http://hdl.handle.net/10.1093/wber/lhs020
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    References listed on IDEAS

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    1. Kapetanios, G. & Pesaran, M. Hashem & Yamagata, T., 2011. "Panels with non-stationary multifactor error structures," Journal of Econometrics, Elsevier, vol. 160(2), pages 326-348, February.
    2. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
    3. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    4. Pesaran, M.H., 2004. "‘General Diagnostic Tests for Cross Section Dependence in Panels’," Cambridge Working Papers in Economics 0435, Faculty of Economics, University of Cambridge.
    5. Hendry, David F., 1995. "Dynamic Econometrics," OUP Catalogue, Oxford University Press, number 9780198283164.
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    Cited by:

    1. Eberhardt, Markus & Presbitero, Andrea F., 2015. "Public debt and growth: Heterogeneity and non-linearity," Journal of International Economics, Elsevier, vol. 97(1), pages 45-58.
    2. Murat Ungor, 2017. "Productivity Growth and Labor Reallocation: Latin America versus East Asia," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 24, pages 25-42, March.
    3. Méon, Pierre-Guillaume & Sekkat, Khalid, 2015. "The formal and informal institutional framework of capital accumulation," Journal of Comparative Economics, Elsevier, vol. 43(3), pages 754-771.
    4. Carmignani, Fabrizio & Mandeville, Thomas, 2014. "Never been industrialized: A tale of African structural change," Structural Change and Economic Dynamics, Elsevier, vol. 31(C), pages 124-137.
    5. repec:hal:journl:halshs-01318131 is not listed on IDEAS
    6. Dierk Herzer & Holger Strulik, 2017. "Religiosity and income: a panel cointegration and causality analysis," Applied Economics, Taylor & Francis Journals, vol. 49(30), pages 2922-2938, June.
    7. Herzer, Dierk, 2014. "The long-run relationship between trade and population health: evidence from five decades," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100441, Verein für Socialpolitik / German Economic Association.
    8. Markus Eberhardt & Andrea F. Presbitero, 2013. "This Time They’re Different: Heterogeneity and Nonlinearity in the Relationship between Debt and Growth," Discussion Papers 2013/10, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    9. Thomas Wai-Kee Yuen & Winnie Wan-Ling Chu, 2015. "Happiness in ASEAN member states," International Journal of Happiness and Development, Inderscience Enterprises Ltd, vol. 2(1), pages 69-83.
    10. Marta Simões & João Andrade & Adelaide Duarte, 2013. "A regional perspective on inequality and growth in Portugal using panel cointegration analysis," International Economics and Economic Policy, Springer, vol. 10(3), pages 427-451, September.
    11. Olivier Damette & Mathilde Maurel & Michael A. Stemmer, 2016. "What does it take to grow out of recession? An error-correction approach towards growth convergence of European and transition countries," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01318131, HAL.
    12. Dierk Herzer & Oliver Morrissey, 2013. "Foreign aid and domestic output in the long run," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 149(4), pages 723-748, December.
    13. Mickaël Clévenot & Marie Silvère Mbome, 2014. "Reassessing Vulnerability to Macroeconomic Volatility: a nonstationary panel approach," CEPN Working Papers hal-00951544, HAL.
    14. Erich Gundlach & Martin Paldam, 2016. "Socioeconomic transitions as common dynamic processes," Economics Working Papers 2016-06, Department of Economics and Business Economics, Aarhus University.

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