Structural Change and the Environment

The objective of this chapter is to evaluate the contribution of structural change to production and consumption patterns with respect to sustainability analysis, with specific reference to sustainable production and consumption issues. In the face of delocalization processes and value chain restructuring, the analysis of sustainable development should instead provide both consumption and production dimensions. In the empirical analysis, the authors consider four measures of emission intensity: consumption-based emissions, consumption-based emissions due to structural change, production-based emissions, and production-based emissions due to structural change. The empirical results suggest a moderate contribution of structural change to decreases in overall emissions.

The Geographical Dimension of Structural Change

This chapter explores patterns of structural change from a geographical perspective. It summarizes recent insights on the geography of structural change, and in particular on regional diversification. It shows how local capabilities and institutions impact on structural change, and why the capacity of regions to diversify differs substantially. This chapter describes how concepts like diversification and relatedness have been fruitfully combined in a rapidly expanding literature. Diversification refers to the emergence of new activities, an important feature of structural change. These new activities are often embedded in, or related to, existing activities at the national and regional scale, requiring similar capabilities. But new activities can also be unrelated to existing ones.

Trade Liberalization, Structural Change, and Economic Growth

Trade and the integration of countries into the global economy is one of the main forces shaping the structural composition of economies, an effect which in turn is expected to impact upon productivity and growth. Structural change can be restrained or reinforced by international trade. This chapter reviews the theory on the relationship between trade and trade liberalization and both structural change and growth, from the contributions of Adam Smith to the more recent new new trade theory beginning with the work of Melitz. The chapter further discusses the existing empirical evidence on the relationship between trade and structural change, before concluding by presenting evidence on the impact of trade liberalization on productivity growth for a broad sample of countries, further decomposing the effect into an effect due to structural change and an effect due to within sector productivity developments.

Structure and Structural Change in Macroeconomic Theory

Macroeconomic models are built on causal structures that reflect choices made with respect to the variables that are solved from the model and those assumed exogenous. These choices are the ‘closures’ of the model. Differences in closures can lead to stark qualitative differences in the model’s solutions of macroeconomic equilibrium, and should therefore reflect the basic structure of the economy. In order to highlight these differences, closures are discussed first in the context of one-sector models. Closing mechanisms become even more consequential for models that formalize economies with multiple sectors. The second part of the chapter thus extends the discussion to multi-sector models and, particularly, to dual economy models. These models are especially relevant for understanding the process of structural change in developing countries and its implications for growth and development.

Investment, Profitability, and Structural Change

This chapter explores the links between profitability, investment, and structural change. This is examined for the case of India, using both a historical overview and regression analysis. In a Kaldorian dynamic economy, the reallocation of investment provides the driver for resource reallocation, allowing more productive and profitable activities to expand and less productive and less profitable activities to contract. Thus, investment choices drive structural change, productivity growth, technological advance, and ultimately profits. Investment in turn responds to expected profits, which are driven by technical change, related productivity gains, and shifts in demand. The relationships are thus circular and cumulative, with this chapter testing for the presence of such relationships.

Structural Change as a Modernization Process

This chapter analyses economic development through the lens of a newly developed index: the structural modernization index. This index combines two dimensions that have been widely invoked as prime drivers of economic development namely, structural change and technological catch-up. For each country, the index calculates the productivity gap with respect to the world frontier in activities that typically represent the modern sector of the economy and weights this relative productivity by the employment share of those activities in the total labour force. The index is calculated for a sample of 115 countries over the period 1960–2014. It is used to explore the relationship between structural modernization and the ability to escape poverty and middle-income traps.

Determinants of Industrial Development

Global evidence suggests that, for many countries, manufacturing typically has an inverted U-shaped relationship with development. But unlike the historical experience of most developed countries, for most developing countries the turning point of this relationship is occurring sooner in the development process, and at substantially lower levels of income. This is termed ‘premature deindustrialization’. The consequences of this may be particularly important if such countries can no longer rely on manufacturing-led development. Why are some countries more industrialized, or more deindustrialized, than other comparable countries? To explore these issues, this chapter uses panel-data econometric techniques to analyse the determinants of the share of manufacturing in GDP, across countries and across time. Domestic determinants include investment, government consumption, population size, human capital, democracy, and natural resource endowments. External determinants include trade openness, capital account liberalization, and exchange rate depreciation.

Latin American Structuralism and Neo-structuralism

This chapter is devoted to Latin American structuralism. The chapter summarizes centre–periphery theory as stressing the co-evolution of technological capabilities and the pattern of specialization. The centre and periphery are two different sets of countries that differ markedly in terms of this co-evolution. Firstly, the periphery is a laggard region in terms of technological capabilities with respect to the centre. Secondly, to the extent that technology is a crucial determinant of international competitiveness, the asymmetry in technological capabilities (the technology gap) shapes the set of goods the periphery can competitively produce in an open economy. This set of goods constitutes the periphery’s pattern of specialization. Thirdly, causality goes in both directions: specialization affects the learning trajectory of the periphery because what economic agents learn depends on what they currently produce and on their accumulated experience in specific sectors and technologies. In this way, specialization has an impact of its own on the technology gap.

Patterns of Diversification and Specialization in International Trade

Changes in the composition of production refer not only to the structure of production but also the composition of exports. The structure of exports is the topic of this chapter. The point of departure for the chapter is the well-known U-curve pattern of specialization proposed by Imbs & Wacziarg (2003). The chapter is informed by technology gap theories of catch-up. Due to international technology transfer laggard economies can start catching up. In this process they will tend to diversify. The main aim of the chapter is to test whether the U-curve hypothesis is valid. It makes an interesting distinction between specialization within product groups and specialization between product groups. For this, the chapter develops a new measure of entropy, which decomposes within and between group degrees of specialization. A rising trend for total entropy is observed over the whole product range. The curve tends to flatten at higher income levels, but it does not decline suggesting that there is no U-curve.

Structural Change, Economic Development, and the Labour Market

This chapter addresses the relationship between structural change and the income distribution. It raises the question of whether structural change increases or decreases income inequality. The chapter presents a multi-sectoral model in the so-called canonical modelling tradition. In this model the distributional outcomes depend on the mix of the labour supply in different technology classes and skill biases in technological change. Whether structural change has an effect depends on the specific country. When it does have an effect, it mainly benefits high-skilled labour. The skill premium for high-skilled labour thus contributes to increased income inequality. Both the relative supply of skills and skill-based technological change tend to increase income inequality, though not in all countries.