Patterns of Development and Structural Change

The general goal of this research was to analyze the relationship between structural change and the level of economic development for national economies. In particular, we tried to answer the following question: Do the shares of industry, agriculture and services as a percentage of GNP change in the same way over time and for every country? Working with a sample of 98 countries for the period 1970–1988 (one observation per year, totaling 1862 observations) we tested six progressively complex econometric models for the same phenomena. We started with the simplest model, a pooled regression of cross-sectional and time-series data. This model, having constant and unique intercept and slopes, specifies the notion of a universal pattern of structural change for all countries. The next procedure was to run regressions on a fixed effects model, a random effects model, a totally unrestricted model (allowing inter-country variations in intercepts and slopes), a general trend model (including time as an extra explanatory variable), and finally, a parametric drift model. This latter model allows for temporal variation in intercepts and slopes, reflecting the possibility of continuous change in the behavior of countries along time. Applying the methodology of F-tests and Hausman tests, combined with the analysis of significance levels of the coefficients of the explanatory variables, we rejected the hypothesis of the existence of a universal pattern of development. In doing so, we found strong evidence favoring the totally unrestricted model, but we could not accept the hypothesis of parametric drift in the regression coefficients. These general results were validated at the level of each sector (agricultural, industrial and service) for all countries. These results also held for different income groups (low, middle and high).