Structural Change and

Productivity Growth
--in Latin America, Asia, and Turkey
Dani Rodrik
Merih Celasun Memorial Lecture
December 2010
Structuralism is back

 Not in the sense of distrust of markets or underestimation of the

role of incentives
 But greater appreciation of the role that “economic structure”
plays in facilitating and constraining economic development
 As evidenced by work on:
 Inter-sectoral and inter-firm gaps in productivity

 “dualism”
 The export-diversification challenge
 Innovation as “self-discovery” rather than R&D

 Structural change as engine of development

 Developing economies are not just radially-shrunk versions of

advanced economies
Labor productivity gaps: Turkey
Labor productivity in relation to average productivity, 2005

0
agr min man pu con wrt tsc fire cspsgs
Dualism within sectors

Source: McKinsey Global Institute (2003)

Inter-sectoral productivity gaps diminish
over the course of development
-.14

BWA
IDN

MYS
-.16

IND
BOL BRA
TURTHAVEN

PER
TWN NLD
-.18

PHL COL

CHL

KOR DNK
HKG
MEX
-.2

ARG SGP
CRI ESP
JPN
ITA
SWE USA
UKM
-.22

FRA

7 8 9 10 11
lnrgdpch

Coefficient of variation of (log) sectoral labor productivity against per-

capita income
How does inter-sectoral structural change
contribute to overall productivity growth?

Pt  i ,t k pi ,t   pi ,t i ,t

i n i n

“within” “structural change”

The Latin American paradox
Productivity decomposition in Latin America across different periods
(annual growth rates)

1950 - 1975

1975 - 1990

1990 - 2005 Sectoral productivity

growth
Structural change

-0.01 -0.005 0 0.005 0.01 0.015 0.02 0.025 0.03 0.035 0.04 0.045

Based on data from Carmen Pages, ed., The Age of Productivity, IDB, 2010.
Implications

 Post-1990 growth constrained by adverse structural

change
 “growth reducing structural change”

 Consequence of economic liberalization: positive within

effects, negative overall effects?
 Empirical work on productivity consequences of trade
liberalization within manufacturing
 What happens if displaced labor ends up in sectors

with even lower productivity

 Informality, traditional services, etc.
A more detailed, comparative look: the data
Latin America Asia High-income
ARG HKG DNK
BOL IDN ESP
BRA IND FRA
CHL KOR ITA + TUR
COL MYS JPN
CRI PHL NLD
MEX SGP SWE
PER THA UKM
VEN TWN USA

Sector Full name

1 AGR Agriculture TUR not
2 MIN Mining included in
3 MAN Manufacturing this data set.
4 PU Public utilities I used data
5 CON Construction from TUIK to
6 WRT Wholesale & retail trade include TUR
7 TSC Transport & communication
in the
8 FIRE Finance & business services
9
analysis.
CSPSGS Government & public services

Marcel P. Timmer and Gaaitzen J. de Vries (2007), “A Cross-Country Database For Sectoral Employment And Productivity
In Asia And Latin America, 1950-2005,” Groningen Growth and Development Centre Research Memorandum GD-98,
Groningen: University of Groningen, August 2007.
Questions

 Is this something due to post-1990 global conjuncture?

 How does Asia compare?
 Where does Turkey stand in comparison to Latin
America and Asia?
 How can we explain these patterns?
Basic results
Decomposing productivity change, 1990-2005

LAC

ASIA

sectoral productivity growth

HI
structural change

-0.015 -0.01 -0.005 0 0.005 0.01 0.015 0.02 0.025 0.03 0.035 0.04

region overall productivity growth sectoral productivity growth structural change

LAC 1.35% 2.24% -0.88%
ASIA 3.33% 2.81% 0.52%
HI 1.46% 1.54% -0.09%
Basic results (weighted data)
Decomposing productivity growth, 1990-2005 (weighted data)

LAC

ASIA

sectoral productivity growth

HI
structural change

-0.50% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50%

region overall productivity growth sectoral productivity growth structural change

LAC 1.08% 1.05% 0.03%
ASIA 3.28% 2.12% 1.16%
HI 1.81% 1.92% -0.11%
Countries ranked by:

Contribution of sectoral: Contribution of structural change:

country region total within structural country region total within structural
KOR ASIA 0.038972 0.052947 -0.013975 THA ASIA 0.030511 0.013835 0.016676
PER LAC 0.034072 0.038536 -0.004465 ETH AFRICA 0.018733 0.003935 0.014798
CHL LAC 0.029252 0.038205 -0.008953 TUR TURKEY 0.031586 0.017353 0.014233
SGP ASIA 0.037079 0.037853 -0.000775 HKG ASIA 0.03272 0.020182 0.012538
MYS ASIA 0.040816 0.035871 0.004946 IDN ASIA 0.027799 0.017228 0.010571
TWN ASIA 0.039907 0.03448 0.005427 IND ASIA 0.042316 0.032409 0.009906
BOL LAC 0.008808 0.033657 -0.024849 TWN ASIA 0.039907 0.03448 0.005427
IND ASIA 0.042316 0.032409 0.009906 MYS ASIA 0.040816 0.035871 0.004946
VEN LAC -0.003542 0.032048 -0.03559 CRI LAC 0.0125 0.008725 0.003775
ARG LAC 0.023534 0.029429 -0.005896 MEX LAC 0.01067 0.008339 0.002331
HKG ASIA 0.03272 0.020182 0.012538 PHL ASIA 0.009455 0.00809 0.001365
TUR TURKEY 0.031586 0.017353 0.014233 SGP ASIA 0.037079 0.037853 -0.000775
IDN ASIA 0.027799 0.017228 0.010571 BRA LAC 0.004444 0.006957 -0.002513
THA ASIA 0.030511 0.013835 0.016676 COL LAC 0.001849 0.00529 -0.00344
CRI LAC 0.0125 0.008725 0.003775 PER LAC 0.034072 0.038536 -0.004465
MEX LAC 0.01067 0.008339 0.002331 ARG LAC 0.023534 0.029429 -0.005896
PHL ASIA 0.009455 0.00809 0.001365 CHL LAC 0.029252 0.038205 -0.008953
BRA LAC 0.004444 0.006957 -0.002513 KOR ASIA 0.038972 0.052947 -0.013975
COL LAC 0.001849 0.00529 -0.00344 BOL LAC 0.008808 0.033657 -0.024849
ETH AFRICA 0.018733 0.003935 0.014798 VEN LAC -0.003542 0.032048 -0.03559
Looking closer at “structural change”
term: LAC
Correlation Between Sectoral Productivity and
Change in Employment Shares in Latin America (1990-2005)
 = -2.6866; t-stat = -1.17
3

min pu
min
pu
pu
con min
2

minmin
pu
pu
pu
min
pu
minfire
tsc tsc
1

fire
man tscfire
man man con
man man
man
man tsc putsctsc man
mancon tsc
cspsgs fire
tsc
tsc
con
con fire
con
wrt wrt
0

cspsgs agr cspsgs

fire wrt fire cspsgs
cspsgs fire
wrt
agr agr agragr con cspsgs
cspsgs
cspsgs cspsgs
fire wrt
agr agr mincon wrt wrt wrt
agr
-1

pu
agr wrt
con

-.2 -.1 0 .1 .2
Change in Employment Share
(Emp. Share)

Fitted values
*Note:  denotes coef f . of independent v ariable in regression equation:
 + Emp. Share
ln(p/P) =
Source: Authors' calculations with data f rom Timmer and de Vries (2007)
Looking closer at “structural change”
term: Asia
Correlation Between Sectoral Productivity and
Change in Employment Shares in Asia (1990-2005)
 = 3.3202; t-stat = 2.04
3

min
pu
pu
pu
min
min
2

pu
pufire
pu
min
pu fire
min
tsc
mintsc
pu
manmin
1

man pu wrtfire
man
man
fire
cspsgs con
tsc
fire
tsc tscman fire fire
man fire man
man tsctsc tsc
con cspsgs
0

min cspsgs
wrt con con
cspsgs
cspsgs
wrt
tscwrtwrt wrt
wrt wrt
agr cspsgs
cspsgs
man agr agr min cspsgs
cspsgs
agr con con wrt
con
-1

agr con
agr con
agr agr fire
agr
-2

-.2 -.1 0 .1
Change in Employment Share
(Emp. Share)

Fitted values
*Note:  denotes coef f . of independent v ariable in regression equation:
 + Emp. Share
ln(p/P) =
Source: Authors' calculations with data f rom Timmer and de Vries (2007)
Selected countries: Argentina

Correlation Between Sectoral Productivity and

Change in Employment Shares in Argentina (1990-2005)
 = -7.0981; t-stat = -1.21 min
2

pu
1.5
1

man
.5

tsc

con
0

agr wrt
cspsgs
-.5

fire

-.06 -.04 -.02 0 .02 .04

Change in Employment Share
(Emp. Share)

Fitted values
*Note: Size of circle represents employ ment share in 1990
**Note: denotes coef f . of independent v ariable in regression equation:
 + Emp. Share
ln(p/P) =
Source: Author's calculations with data f rom Timmer and de Vries (2007)
Selected countries: Brazil

Correlation Between Sectoral Productivity and

Change in Employment Shares in Brazil (1990-2005)
 = -2.2102; t-stat = -0.17 pu
2

min
1

fire

man
con
tsc
0

cspsgs

agr
-1

wrt

-.1 -.05 0 .05

Change in Employment Share
(Emp. Share)

Fitted values
*Note: Size of circle represents employ ment share in 1990
**Note: denotes coef f . of independent v ariable in regression equation:
 + Emp. Share
ln(p/P) =
Source: Author's calculations with data f rom Timmer and de Vries (2007)
Selected countries: India

Correlation Between Sectoral Productivity and

Change in Employment Shares in India (1990-2005)
 = 35.2372; t-stat = 2.97
2

pu

fire
tsc
min
1

wrt
con
cspsgs man
0
-1

agr

-.04 -.02 0 .02

Change in Employment Share
(Emp. Share)

Fitted values
*Note: Size of circle represents employ ment share in 1990
**Note: denotes coef f . of independent v ariable in regression equation:
 + Emp. Share
ln(p/P) =
Source: Author's calculations with data f rom Timmer and de Vries (2007)
Selected countries: Thailand

Correlation Between Sectoral Productivity and

Change in Employment Shares in Thailand (1990-2005)
 = 5.1686; t-stat = 1.27
3

pu
min
2

tsc
1

man

fire
0

cspsgs
wrt

con
-1

agr

-.2 -.1 0 .1
Change in Employment Share
(Emp. Share)

Fitted values
*Note: Size of circle represents employ ment share in 1990
**Note: denotes coef f . of independent v ariable in regression equation:
 + Emp. Share
ln(p/P) =
Source: Author's calculations with data f rom Timmer and de Vries (2007)
How does Turkey compare?
Decomposition of productivity growth, Turkey

1988-2008

within
structural change

1990-2005

0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50%

Selected countries: Turkey
Correlation Between Sectoral Productivity and
Change in Employment Shares in Turkey (1988-2008)
 = 2.9138; t-stat = 1.14 pu
1.5

tsc
fire
1
.5

min
man
con
0

wrt
-.5

cspsgs
agr
-1

-.2 -.1 0 .1
Change in Employment Share
(Emp. Share)

Fitted values
*Note: Size of circle represents employ ment share in 1988
**Note: denotes coef f . of independent v ariable in regression equation:
 + Emp. Share
ln(p/P) =
Source: Authors' calculations with data f rom the Turkish Statistical Institute
Some intermediate conclusions

 Structural change in LAC contributed negatively (unweighted) or

very little (weighted) to labor productivity growth compared to what
happened in ASIA
 These economies are supposed to have become more “open”: yet in
all cases the employment share of tradables (the sectors
experiencing the most rapid productivity growth) has been shrinking.
 Some of this is normal, and associated with increase in incomes

 But also signs that some of it is pre-mature

 Turkey looks decidedly more “Asian” in terms of the contribution of

structural change to overall productivity growth
Explaining differences across countries

 Richer countries may have less room for productivity-

enhancing structural change
 Labor market rigidities may prevent expansion of more
productive sectors
 Trade/industrial/currency policies may:
 play a role in encouraging/discouraging new tradable activities
 expose tradables to import competition too early and excessively
 Comparative advantage may
 encourage specialization in primary products instead of
manufacturing
 with limited potential to absorb labor
Income differences
Average economy-wide labor productivity, 2000 PPP $

60000
1990
2005

50000

40000

30000

20000

10000

0
ASIA HI LAC TURKEY
Inter-sectoral productivity gaps
Dispersion of sectoral labor productivity, 2005
(coefficient of variation of log sectoral productivites)

0.16 Asia average: 0.098

LAC average: 0.098

0.14
Turkey: 0.080

0.12

0.1

0.08

0.06

0.04

0.02

0
HKG IDN IND KOR MYS PHL SGP THA TWN ARG BOL BRA CHL COL CRI MEX PER VEN TUR
Structure of exports
.01

TUR

HKG THA
0

FRA
JPN ITASWEESP
MEX
DNKNLD CRI IDN
IND
-.01

MYS BRA
SGP
UKM PER
USA
PHL
ARG
COL
-.02

KOR
CHL
-.03

BOL

t-stat: -3.38
-.04

VEN

0 20 40 60 80
Exp_rawmat
The real exchange rate
.02

t-stat: 3.12 IDN

THA
.01

TUR
PER CRI
IND

BRA
MEX ARG COL
CHL
HKG
0

MYS
FRA ESP
NLD
ITA PHL
DNK
SWE
BOL
-.01

JPN SGP
USA
UKM
VEN
-.02

KOR

-1 -.5 0 .5 1
underval
Rigidity of labor laws
.01

TUR
THA
PER
HKG IDN
CRI
DNK
0

ARG
MEX
NLD
COL SWE FRA
MYS CHL
JPN ITA BRAESP
IND
SGP
USA
-.01

UKM

PHL

BOL
-.02

KOR VEN

t-stat: -1.70
-.03

0 20 40 60 80
Employment rigidity index (0=less rigid, 100=more rigid)
Concluding comments

 Structural transformation is the key to economic

development
 Structural transformation is not an automatic
process
 We need to avoid both the dirigiste and the market
fundamentalist traps
 pragmatism rather than preconceived ideologies
 strategic collaboration between government and the private
sector
 Ingredients:
 Institutionalized dialogues, carrots, and sticks