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Globalization, Structural Change and Productivity Growth

  • Margaret S. McMillan
  • Dani Rodrik

Large gaps in labor productivity between the traditional and modern parts of the economy are a fundamental reality of developing societies. In this paper, we document these gaps, and emphasize that labor flows from low-productivity activities to high-productivity activities are a key driver of development. Our results show that since 1990 structural change has been growth reducing in both Africa and Latin America, with the most striking changes taking place in Latin America. The bulk of the difference between these countries' productivity performance and that of Asia is accounted for by differences in the pattern of structural change - with labor moving from low- to high-productivity sectors in Asia, but in the opposite direction in Latin America and Africa. In our empirical work, we identify three factors that help determine whether (and the extent to which) structural change contributes to overall productivity growth. In countries with a relatively large share of natural resources in exports, structural change has typically been growth reducing. Even though these "enclave" sectors usually operate at very high productivity, they cannot absorb the surplus labor from agriculture. By contrast, competitive or undervalued exchange rates and labor market flexibility have contributed to growth enhancing structural change.

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File URL: http://www.nber.org/papers/w17143.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17143.

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Date of creation: Jun 2011
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Publication status: published as “Globalization, Structural Change and Productivity Growth,” 2011. In Making Globalization Socially Sustainable, edited by Mark Bachetta and Marion Jansen, International Labor Organization, Geneva Switzerland. (with Dani Rodrik)
Handle: RePEc:nbr:nberwo:17143
Note: ITI
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  1. Nina Pavcnik, 2000. "Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants," NBER Working Papers 7852, National Bureau of Economic Research, Inc.
  2. Maurice Kugler & John Haltiwanger & Adriana Kugler & Marcela Eslava, 2009. "Trade Reforms and Market Selection: Evidence from Manufacturing Plants in Colombia," 2009 Meeting Papers 615, Society for Economic Dynamics.
  3. Wobst, Peter & Thurlow, James, 2005. "The Road to Pro-Poor Growth in Zambia: Past Lessons and Future Challenges," Proceedings of the German Development Economics Conference, Kiel 2005 37, Verein für Socialpolitik, Research Committee Development Economics.
  4. Mundlak, Yair & Butzer, Rita & Larson, Donald F., 2012. "Heterogeneous technology and panel data: The case of the agricultural production function," Journal of Development Economics, Elsevier, vol. 99(1), pages 139-149.
  5. Horn Welch, Karen & McMillan, Margaret & Rodrik, Dani, 2002. "When Economic Reform Goes Wrong: Cashews in Mozambique," CEPR Discussion Papers 3519, C.E.P.R. Discussion Papers.
  6. Eva Paus & Nola Reinhardt & Michael Robinson, 2003. "Trade Liberalization and Productivity Growth in Latin American Manufacturing, 1970-98," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 6(1), pages 1-15.
  7. Thurlow, James & Wobst, Peter, 2004. "The road to pro-poor growth in Zambia," DSGD discussion papers 16, International Food Policy Research Institute (IFPRI).
  8. Marcel P. Timmer & Gaaitzen J. de Vries, 2009. "Structural change and growth accelerations in Asia and Latin America: a new sectoral data set," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 3(2), pages 165-190, June.
  9. Fernandes, Ana M., 2003. "Trade policy, trade volumes, and plant-level productivity in Colombian manufacturing industries," Policy Research Working Paper Series 3064, The World Bank.
  10. Stefano Scarpetta: & John Haltiwanger & Eric Bartelsman:, 2007. "Cross Country Differences in Productivity: The Role of Allocative Efficiency," 2007 Meeting Papers 134, Society for Economic Dynamics.
  11. Bartelsman, Eric & Haltiwanger, John C. & Scarpetta, Stefano, 2009. "Cross-Country Differences in Productivity: The Role of Allocation and Selection," IZA Discussion Papers 4578, Institute for the Study of Labor (IZA).
  12. Pedro Cavalcanti Ferreira & JosÈ Luiz Rossi, 2003. "New Evidence from Brazil on Trade Liberalization and Productivity Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1383-1405, November.
  13. Timmer, Marcel P. & Vries, Gaaitzen J. de, 2007. "A Cross-country Database For Sectoral Employment And Productivity in Asia and Latin America, 1950-2005," GGDC Research Memorandum GD-98, Groningen Growth and Development Centre, University of Groningen.
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