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A Three-Sector Model of Structural Transformation and Economic Development

  • Bah, El-hadj M.

Growth accounting exercises point to aggregate TFP dierences as the dominant source of the large cross-country income dierences. In this paper, I ask which sectors account for the aggregate TFP gap between rich and poor countries. Data limitations for developing countries have led researchers to use indirect methods for estimating sectoral TFPs. This paper proposes a new approach for estimating sectoral TFP using panel data on sectoral employment shares and GDP per capita. The approach builds a model of structural transformation and uses it to infer sectoral TFP time series consistent with the reallocation of labor between sectors and GDP per capita growth of a set of developing countries over a 40-year period. I nd that relative to the US, developing countries are the least productive in agriculture, followed by services and then manufacturing. While these ndings are consistent with empirical studies, they dier from ndings in the growth literature.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10654.

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Date of creation: Nov 2007
Date of revision: 19 Sep 2008
Handle: RePEc:pra:mprapa:10654
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  1. Berthold Herrendorf & Akos Valentinyi, 2006. "Which Sectors Make the Poor Countries so Unproductive?," 2006 Meeting Papers 304, Society for Economic Dynamics.
  2. Chang-Tai Hsieh & Peter J. Klenow, 2007. "Relative Prices and Relative Prosperity," American Economic Review, American Economic Association, vol. 97(3), pages 562-585, June.
  3. Restuccia, Diego & Yang, Dennis Tao & Zhu, Xiaodong, 2008. "Agriculture and aggregate productivity: A quantitative cross-country analysis," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 234-250, March.
  4. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
  5. Stephen L. Parente & Edward C. Prescott, 2002. "Barriers to Riches," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661306, June.
  6. Bah, El-hadj, 2009. "Structural Transformation in Developed and Developing Countries," Proceedings of the German Development Economics Conference, Frankfurt a.M. 2009 42, Verein für Socialpolitik, Research Committee Development Economics.
  7. Francesco Caselli, 2004. "Accounting for Cross-Country Income Differences," NBER Working Papers 10828, National Bureau of Economic Research, Inc.
  8. Ngai, Liwa Rachel & Pissarides, Christopher, 2004. "Structural Change in a Multi-Sector Model of Growth," CEPR Discussion Papers 4763, C.E.P.R. Discussion Papers.
  9. Echevarria, Cristina, 1997. "Changes in Sectoral Composition Associated with Economic Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(2), pages 431-52, May.
  10. Richard Rogerson, 2008. "Structural Transformation and the Deterioration of European Labor Market Outcomes," Journal of Political Economy, University of Chicago Press, vol. 116(2), pages 235-259, 04.
  11. Margarida Duarte & Diego Restuccia, 2006. "The Role of the Structural Transformation in Aggregate Productivity," 2006 Meeting Papers 415, Society for Economic Dynamics.
  12. Lutz Hendricks, 2002. "How Important Is Human Capital for Development? Evidence from Immigrant Earnings," American Economic Review, American Economic Association, vol. 92(1), pages 198-219, March.
  13. Wacziarg, Romain & Welch, Karen Horn, 2003. "Trade Liberalization and Growth: New Evidence," Research Papers 1826, Stanford University, Graduate School of Business.
  14. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
  15. Parente, Stephen L & Prescott, Edward C, 1994. "Barriers to Technology Adoption and Development," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 298-321, April.
  16. Cordoba, Juan Carlos & Ripoll, Marla, 2010. "Endogenous Tfp and Cross-Country Income Differences," Staff General Research Papers 32116, Iowa State University, Department of Economics.
  17. Sergio Rebelo & Piyabha Kongsamut & Danyang Xie, 2001. "Beyond Balanced Growth," IMF Working Papers 01/85, International Monetary Fund.
  18. Douglas Gollin & Stephen Parente & Richard Rogerson, 2002. "The Role of Agriculture in Development," American Economic Review, American Economic Association, vol. 92(2), pages 160-164, May.
  19. Gollin, Douglas & Parente, Stephen L. & Rogerson, Richard, 2007. "The food problem and the evolution of international income levels," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1230-1255, May.
  20. Prescott, Edward C, 1998. "Needed: A Theory of Total Factor Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 525-51, August.
  21. Laitner, John, 2000. "Structural Change and Economic Growth," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 545-61, July.
  22. Peter Klenow & Andrés Rodríguez-Clare, 1997. "The Neoclassical Revival in Growth Economics: Has It Gone Too Far?," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 73-114 National Bureau of Economic Research, Inc.
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