A Three-Sector Model of Structural Transformation and Economic Development

Bah, El-hadj M. (2007): A Three-Sector Model of Structural Transformation and Economic Development.

Abstract

Differences in total factor productivity (TFP) are the dominant source of the large variation of income across countries. This paper seeks to understand which sectors account for the aggregate TFP gap between rich and poor countries. I propose a new approach for estimating sectoral TFP using panel data on sectoral employment shares and GDP per capita. The approach builds a three-sector model of structural transformation and uses it to infer time paths of sectoral TFP consistent with the reallocation of labor between sectors and GDP per capita growth of a set of developing countries over a 40-year period. I find that relative to the US, developing countries are the least productive in agriculture, followed by services and then manufacturing. The findings are consistent with the evidence from micro data and the approach has the novelty to measure sectoral TFPs over the long term.

• Item Type: MPRA Paper
• Language: English
• Keywords: Productivity, Sectoral TFP, Structural Transformation, Eco- nomic growth, Economic Development
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence; E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E10 - General; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O14 - Industrialization ; Manufacturing and Service Industries ; Choice of Technology

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