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The Role of the Structural Transformation in Aggregate Productivity

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  • Margarida Duarte
  • Diego Restuccia

Abstract

We investigate the role of sectoral differences in labor productivity in explaining the process of structural transformation - the secular reallocation of labor across sectors - and 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. Productivity differences between rich and poor countries are large in agriculture and services and smaller in manufacturing. Moreover, over time, productivity gaps have been substantially reduced in agriculture and industry but not nearly as much in services. In the model, these sectoral productivity patterns generate implications that are broadly consistent with the cross-country evidence on the structural transformation, aggregate productivity paths, and relative prices. We show that productivity catch-up in industry explains about 50 percent of the gains in aggregate productivity across countries, while low relative productivity in services and the lack of catch-up explains all the experiences of slowdown, stagnation, and decline observed across countries.

Suggested Citation

  • Margarida Duarte & Diego Restuccia, 2009. "The Role of the Structural Transformation in Aggregate Productivity," Working Papers tecipa-348, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:tecipa-348
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    More about this item

    Keywords

    labor productivity; structural transformation; sectoral productivity; employment; hours; cross-country data;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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