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The Role of the Structural Transformation in Aggregate Productivity

  • Margarida Duarte
  • Diego Restuccia

We investigate the role of sectoral differences in labor productivity and the process of structural transformation (the secular reallocation of labor across sectors) in accounting for the time path of aggregate productivity across countries. Using a simple model of the structural transformation that is calibrated to the growth experience of the United States, we measure sectoral labor productivity differences across countries. These differences are large and systematic: labor productivity differences between rich and poor countries are large in agriculture and services and smaller in manufacturing. When fed into the model, these sectoral labor productivity differences and the structural transformation they produce account for more than 50 percent of the fast catch-up in aggregate productivity observed in less developed economies and all of the stagnation and decline observed in more developed economies in recent decades.

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Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-300.

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Length: 41 pages
Date of creation: 22 Oct 2007
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-300
Contact details of provider: Postal: 150 St. George Street, Toronto, Ontario
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  1. Berthold Herrendorf & Akos Valentinyi, 2005. "Which Sectors Make the Poor Countries so Unproductive?," IEHAS Discussion Papers 0519, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  2. Margarida Duarte & Diego Restuccia, 2007. "The structural transformation and aggregate productivity in Portugal," Portuguese Economic Journal, Springer, vol. 6(1), pages 23-46, April.
  3. 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.
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  8. Baumol, William J, 1972. "Macroeconomics of Unbalanced Growth: Reply," American Economic Review, American Economic Association, vol. 62(1), pages 150, March.
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  12. Diego Restuccia & Dennis Tao Yang & Xiaodong Zhu, 2007. "Agriculture and Aggregate Productivity: A Quantitative Cross-Country Analysis," Working Papers e07-3, Virginia Polytechnic Institute and State University, Department of Economics.
  13. Ngai, L. Rachel, 2004. "Barriers and the transition to modern growth," Journal of Monetary Economics, Elsevier, vol. 51(7), pages 1353-1383, October.
  14. Gary D. Hansen & Edward C. Prescott, 2002. "Malthus to Solow," American Economic Review, American Economic Association, vol. 92(4), pages 1205-1217, September.
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  18. Douglas Gollin & Stephen Parente & Richard Rogerson, 2002. "The Role of Agriculture in Development," Department of Economics Working Papers 2002-09, Department of Economics, Williams College.
  19. 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.
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