Role of Structural Change in Economic Growth: An Empirical Evidence from a Panel of Asian Countries

Authors

DOI:

https://doi.org/10.47264/idea.lassij/4.2.27

Keywords:

Structural change, Economic growth, Asian countries, panel data models, System GMM, [JEL Classification: L16; O47; O53; C23]

Abstract

Economic growth, although being a major quest of all the economies, is not an automatic phenomenon. Among its determinants, structural change in the form of reallocation of labour from low to high productivity sectors is of crucial importance. In view of the remarkable growth performance and unprecedented structural change of Asia in the last couple of decades, this paper empirically investigated the case of 20 selected Asian countries. By employing the data spanning from 1991 to 2018, the study shows three main results. First, by employing Shift Share Analysis framework, it reaffirms the findings of previous literature that structural change contributes to the aggregate productivity growth. Second, by utilizing Generalized Methods of Moments technique, the results find it to be an important booster of growth. Third, the results are reliable and consistent with alternative measures of structural change like Norm of Absolute Values and Modified Lilien Index. Taken together, these findings suggest that the governments in Asia (other regions like Africa and Latin America may alike) must chalk out policies for structural change promotion.

Metrics

Metrics Loading ...

References

Ahson, U., Siddiqi, M. W., & Mirza, F. (2017). Structural change and economic progress: Empirical evidence from selected Asian countries. Pakistan Journal of Social Sciences, 37(2), 549-565. http://pjss.bzu.edu.pk/website/journal/article/5ec615142b5c1/page

Aizenman, J., Lee, M., & Park, D. (2012). The relationship between structural change and inequality: a conceptual overview with special reference to developing Asia. Asian Development Bank. https://www.adb.org/sites/default/files/publication/156251/adbi-wp396.pdf DOI: https://doi.org/10.2139/ssrn.2175383

Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The review of economic studies, 58(2), 277-297. http://dx.doi.org/10.2139/ssrn.2175383

Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies, 58(2), 277. https://doi.org/10.2307/2297968 DOI: https://doi.org/10.2307/2297968

Arena, R. (2017). Modern structural economic dynamics in the short and the long run. Journal of the History of Economic Thought, 39(1), 101–123. https://doi.org/10.1017/s105383721600105x DOI: https://doi.org/10.1017/S105383721600105X

Barro, R. J. (1991). Economic growth in a cross section of countries. The Quarterly Journal of Economics, 106(2), 407. https://doi.org/10.2307/2937943 DOI: https://doi.org/10.2307/2937943

Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115-143. https://doi.org/10.1016/s0304-4076(98)00009-8 DOI: https://doi.org/10.1016/S0304-4076(98)00009-8

Bond, S. R., Hoeffler, A., & Temple, J. (2001). GMM estimation of empirical growth models (No. 3048). CEPR Discussion Papers. https://ssrn.com/abstract=290522

Bound, J., Jaeger, D. A., & Baker, R. M. (1995). Problems with instrumental variables estimation when the correlation between the instruments and the endogenous explanatory variable is weak. Journal of the American Statistical Association, 90(430), 443-450. https://doi.org/10.1080/01621459.1995.10476536 DOI: https://doi.org/10.1080/01621459.1995.10476536

Briones, R., & Felipe, J. (2013). Agriculture and structural transformation in developing Asia: review and outlook. Asian Development Bank Economics Working Paper Series No. 363. https://doi.org/10.2139/ssrn.2321525 DOI: https://doi.org/10.2139/ssrn.2321525

Busse, M., Erdogan, C., & Mühlen, H. (2019). Structural transformation and its relevance for economic growth in Sub-Saharan Africa. Review of Development Economics, 23(1), 33-53. https://doi.org/10.1111/rode.12543 DOI: https://doi.org/10.1111/rode.12543

Carmignani, F., & Mandeville, T. (2014). Never been industrialized: a tale of African structural change. Structural Change and Economic Dynamics, 31, 124-137. https://doi.org/10.1016/j.strueco.2014.09.002 DOI: https://doi.org/10.1016/j.strueco.2014.09.002

Carraro, A. & Karfakis, P. (2018). Institutions, economic freedom, and structural transformation in 11 sub-Saharan African countries. FAO Agricultural Development Economics Working Paper 18-01. Rome, FAO. http://www.fao.org/publications/card/es/c/I8422EN/

Caselli, F., Esquivel, G., & Lefort, F. (1996). Reopening the convergence debate: a new look at cross-country growth empirics. Journal of Economic Growth, 1(3), 363-389. https://doi.org/10.1007/bf00141044 DOI: https://doi.org/10.1007/BF00141044

Chenery, H. (1960). Patterns of industrial growth. The American Economic Review, 50(4), 624-654. http://www.jstor.org/stable/1812463

Clark, C. (1951). The conditions of economic progress. MacMillan.

Cortuk, O., & Singh, N. (2011). Structural change and growth in India. Economics Letters, 110(3), 178-181. https://doi.org/10.1016/j.econlet.2010.11.034 DOI: https://doi.org/10.1016/j.econlet.2010.11.034

De-Vries, G., Timmer, M., & de-Vries, K. (2015). Structural transformation in Africa: static gains, dynamic losses. The Journal of Development Studies, 51(6), 674-688. https://doi.org/10.1080/00220388.2014.997222 DOI: https://doi.org/10.1080/00220388.2014.997222

Dietrich, A. (2012). Does growth cause structural change, or is it the other way around? A dynamic panel data analysis for seven OECD countries. Empirical Economics, 43(3), 915-944. https://doi.org/10.1007/s00181-011-0510-z DOI: https://doi.org/10.1007/s00181-011-0510-z

Erumban, A. A., Das, D. K., Aggarwal, S., & Das, P. C. (2019). Structural change and economic growth in India. Structural Change and Economic Dynamics, 51, 186-202. https://doi.org/10.1016/j.strueco.2019.07.006 DOI: https://doi.org/10.1016/j.strueco.2019.07.006

Fisher, A. G. (1939). Production, primary, secondary, and tertiary. Economic Record, 15(1), 24-38. https://doi.org/10.1111/j.1475-4932.1939.tb01015.x DOI: https://doi.org/10.1111/j.1475-4932.1939.tb01015.x

Gabardo, F. A., Pereima, J. B., & Einloft, P. (2017). The incorporation of structural change into growth theory: A historical appraisal. Economia, 18(3), 392-410. https://doi.org/10.1016/j.econ.2017.05.003 DOI: https://doi.org/10.1016/j.econ.2017.05.003

Hasan R., Lamba, S., & Sen Gupta, A. (2013). Growth, structural change, and poverty reduction: evidence from India. ADB South Asia Working paper Series, No. 22. http://hdl.handle.net/11540/2060

Kaldor, N. (1961). Capital accumulation and economic growth. In The theory of capital (pp. 177-222). Palgrave Macmillan. https://doi.org/10.1007/978-1-349-08452-4_10 DOI: https://doi.org/10.1007/978-1-349-08452-4_10

Kaldor, N. (1967). Strategic factors in economic development. Cornel University.

Keho, Y. (2017). The impact of trade openness on economic growth: the case of Cote d’Ivoire. Cogent Economics & Finance, 5(1). https://doi.org/10.1080/23322039.2017.1332820 DOI: https://doi.org/10.1080/23322039.2017.1332820

Kruger, J. J. (2008). Productivity and structural change: a review of the literature. Journal of Economic Surveys, 22(2), 330-363. https://doi.org/10.1111/j.1467-6419.2007.00539.x DOI: https://doi.org/10.1111/j.1467-6419.2007.00539.x

Kuznets, S. (1957). Quantitative aspects of the economic growth of nations: II. Industrial distribution of national product and labour force. Economic Development and Cultural Change, 5(S4), 1-111. https://doi.org/10.1086/449740 DOI: https://doi.org/10.1086/449740

Lewis, W. A. (1954). Economic development with unlimited supplies of labour. The Manchester School, 22(2), 139-191. https://doi.org/10.1111/j.1467-9957.1954.tb00021.x DOI: https://doi.org/10.1111/j.1467-9957.1954.tb00021.x

Lilien, D. M. (1982). Sectoral shifts and cyclical unemployment. Journal of Political Economy, 90(4), 777-793. https://doi.org/10.1086/261088 DOI: https://doi.org/10.1086/261088

Mahmood, T., & Linden, M. (2017). Structural change and economic growth in Schengen region. International Journal of Economics and Financial Issues, 7(1), 303-311. https://www.econjournals.com/index.php/ijefi/article/view/3547/pdf

McMillan, M., Rodrik, D., & Sepulveda, C. (2017). Structural change, fundamentals, and growth: a framework and case studies. National Bureau of Economic Research. (No. w23378). https://ssrn.com/abstract=2964674 DOI: https://doi.org/10.1596/978-0-8962-9214-7

McMillan, M., Rodrik, D., and Verduzco-Gallo, I. (2014). Globalization, structural change, and productivity growth, with an update on Africa. World Development, 63, 11-32. https://doi.org/10.1016/j.worlddev.2013.10.012 DOI: https://doi.org/10.1016/j.worlddev.2013.10.012

Michaely, M. (1962). Concentration in the international trade (28). The North Holland Publishing.

Nguyen, H. C. (2018). Empirical evidence of structural change: the case of Vietnam’s economic growth. Journal of Southeast Asian Economies, 35(2), 237-256. https://doi.org/10.1355/ae35-2h DOI: https://doi.org/10.1355/ae35-2h

Nyasha, S., & Odhiambo, N. M. (2019). Government size and economic growth: a review of international literature. SAGE Open, 9(3). https://doi.org/10.1177/2158244019877200 DOI: https://doi.org/10.1177/2158244019877200

Olczyk, M., & Kordalska, A. (2018). Growth and structural changes in transition countries: the chicken or the egg? Journal of Business Economics and Management, 19(3), 544-565. https://doi.org/10.3846/jbem.2018.6580 DOI: https://doi.org/10.3846/jbem.2018.6580

Opoku, E. E. O., & Yan, I. K. M. (2018). Industrialization as driver of sustainable economic growth in Africa. The Journal of International Trade & Economic Development, 1-27. https://doi.org/10.1080/09638199.2018.1483416 DOI: https://doi.org/10.1080/09638199.2018.1483416

Padilla-Pérez, R., & Villarreal, F. G. (2017). Structural change and productivity growth in Mexico, 1990-2014. Structural Change and Economic Dynamics, 41, 53-63. https://doi.org/10.1016/j.strueco.2017.02.002 DOI: https://doi.org/10.1016/j.strueco.2017.02.002

Page, J. (2017). Structural transformation: it’s not just manufacturing anymore. The Brookings Institution, G-24 Technical Working Group. https://www.g24.org/wp-content/uploads/2017/04/1.-Page-Structural-Transformation-It%E2%80%99s-Not-Just-Manufacturing-Anymore.pdf

Rodrik, D. (2014). the past, present, and future of economic growth. Challenge, 57(3), 5-39. https://doi.org/10.2753/0577-5132570301 DOI: https://doi.org/10.2753/0577-5132570301

Roodman, D. (2009). How to do Xtabond2: an introduction to difference and system GMM in Stata. The Stata Journal: Promoting Communications on Statistics and Stata, 9(1), 86-136. https://doi.org/10.1177/1536867x0900900106 DOI: https://doi.org/10.1177/1536867X0900900106

Silva, E. G., & Teixeira, A. A. (2011). Does structure influence growth? a panel data econometric assessment of “relatively less developed” countries, 1979-2003. Industrial and Corporate Change, 20(2), 457-510. https://doi.org/10.1093/icc/dtr003 DOI: https://doi.org/10.1093/icc/dtr003

Teixeira, A. A., & Queiros, A. S. (2016). Economic growth, human capital, and structural change: a dynamic panel data analysis. Research Policy, 45(8), 1636-1648. https://doi.org/10.1016/j.respol.2016.04.006 DOI: https://doi.org/10.1016/j.respol.2016.04.006

Timmer, M. P., & Szirmai, A. (2000). Productivity growth in Asian manufacturing: the structural bonus hypothesis examined. Structural Change and Economic Dynamics, 11(4), 371-392. https://doi.org/10.1016/s0954-349x(00)00023-0 DOI: https://doi.org/10.1016/S0954-349X(00)00023-0

Van-Neuss, L. (2019). The drivers of structural change. Journal of Economic Surveys, 33(1), 309-349. https://doi.org/10.1111/joes.12266 DOI: https://doi.org/10.1111/joes.12266

Vu, K. M. (2017). Structural change and economic growth: empirical evidence and policy insights from Asian economies. Structural Change and Economic Dynamics, 41, 64-77. https://doi.org/10.1016/j.strueco.2017.04.002 DOI: https://doi.org/10.1016/j.strueco.2017.04.002

Zulfiqar, K. & Ain, Q. (2018). An analysis of income convergence across Asian countries. Forman Journal of Economic Studies, 14, 125–141. https://doi.org/10.32368/fjes.20181406. DOI: https://doi.org/10.32368/FJES.20181406

Zulkhibri, M., Naiya, I., & Ghazal, R. (2015). Structural change and economic growth in selected emerging economies. International Journal of Development Issues, 14(2), 98-116. https://doi.org/10.1108/ijdi-09-2014-0064 DOI: https://doi.org/10.1108/IJDI-09-2014-0064

Published

2020-12-31

How to Cite

Riaz, U., Hussain, B., & Bhatti, A. A. (2020). Role of Structural Change in Economic Growth: An Empirical Evidence from a Panel of Asian Countries. Liberal Arts and Social Sciences International Journal (LASSIJ), 4(2), 345–360. https://doi.org/10.47264/idea.lassij/4.2.27

Issue

Section

Research Articles | Original Articles | Original Research

Categories