Appunti di economia politica

RECENT DEVELOPMENTS IN STRUCTURAL ADJUSTMENT THEORIES

Reference for this lecture: McMillan and Rodrick (2011), Globalization, structural change and productivity growth, National Bureau of Economic Research, Working Paper Series, wp. 17143. (slightly different version published in World Development, 2014)

That idea of structural change or the very intuitive idea on looking at what happens to labour force as people shift from one sector to the other, it can be applied in different ways, Lewis was worried about shifting labour from agriculture to industry but we can apply it even in other different sectors or we might think in those terms even referring to industry itself shifting of workers from one sector to another so it can be applied in different ways. (see paper on globalization structural change etc.)

The idea of this author is to read the experience of different countries in the world and different areas of the world with this perspective of structural change, trying to measuring

• Not just between agriculture and industry...
• But also within industries...
• Intuition→ all these would appear as allocative inefficiencies because one sector can be much more productive than others that can actually be an important engine of growth. If you compare lower income economies to higher income economies these productivity gaps are different. In higher income economies they're not so large, roughly all sectors (agriculture, manufacturing) do not have such large productivity gaps.
• When labour moves from less productive to more productive activities, the economy grows even if there is no productivity growth within sectors growth-enhancing structural change.
• The opposite could also happen growth-reducing structural change.
• In this light we can analyze a whole change in productivity experienced by an economy, capturing the changes in inter-sectoral allocative efficiency (between) as well as improvements.

Increase its productivity. Literature on productivity heterogeneity within sectors and across plants of the same sector (firm-level studies) - One other way of increasing productivity in a sector it has been discussed a lot was: if less efficient firms are exiting from the market. We have some firms that are not competitive enough to stay in the market according to the vast literature on productivity this is a good thing because you left the more efficient companies in the market and therefore productivity in that specific sector increases. These studies suggest that it is okay if you leave companies to fail is not a problem because competition is one of the ways in which you allow this to happen because competition only make survive the most efficient firms and therefore the less efficient ones left the market - that is called within productivity increase. Pro-liberalization results inefficient companies shut down McMillan and Rodrick get into this debate with a really effective.

intuition: they asked themselves - we understand that less efficient firms close down and there will be only efficient ones and a sector can improve its productivity, but what happens to displaced workers? If they go in the less productive sector (agricultural sector) maybe in the end they get a higher compensation. Whereas the displaced workers are shifted towards a more productive sector (high.tech) in terms of productivity there is a gain. The shift of workers of the displaced workers is called - structural change component - Part of the labour force might shift to less productive (informal) sectors; greater inter-sectoral misallocation. So you can observe the different sectors of an economy and observe that changes in productivity within each sector but also you will observe the shift of labour force from one sector to the other. These two components have to be combined together in order to understand whether a country's productivity is growing or not. When productivity is growing in a

country also GDP do so because it grows in the same way. The concept is the same.

If labour moves from less productive to more productive sector the economy can grow even if there is no productivity growth within sectors. We called this growth enhancing structural change.

So it is the kind of growth that comes from the structural change: movement of workers from one sector to another. Or you can have productivity growth.

Of course the opposite can happen, in this case we talk about growth reducing structural change.

So in this perspective you can analyze how all countries experience productivity growth and analyze the trend of productivity growth of each country, comparing these two components: within the productivity growth or between productivity growth of the structural change?

It's a way of explaining the differences in income gap between rich and poor countries. Try to understand how much of this income gap between rich and poor countries is due to differences in the economic structure.

As opposed to differences in productivity levels within sectors. So on one hand you have: the structure of an economy - how labour is allocated to different sectors? How many workers are employed in ICT in Zambia as opposed to the UK? On the other hand, you have productivity levels within sectors - how much a worker in the ICT sector produces in terms of value in Zambia as opposed to the UK.

If you put together these two things, you can get insights on the experiences of different countries. They provide a sort of simulation: let's suppose that leaving productivity as it is, productivity is about workers that are able to produce a certain value added. It depends upon workers' ability, knowledge, technology, and machinery they have and use. Leaving those productivity levels unchanged, let's simulate a situation in which the economy of the poorest countries resembles the structures of the richest ones - without changes in productivity, but just allocating the amount of work in the different sectors.

of Zambia as in the UK, which are the countries supposed to have thesame structure as the advanced economies.

Decomposing Productivity

Basic intuition in McMillan and Rodrick:

"A high rate of productivity growth within an industry can have quite ambiguous implications foroverall economic performance if the industry's share of employment shrinks rather than expands. Ifthe displaced labor ends up in activities with lower productivity, economy-wide growth will sufferand may even turn negative."

Y -> overall productivity : the quantity of goods and services over labour, the output of aneconomy over labour

Yi -> is the same for each sector (manifacturing, service, construction sector ecc) the output of eachsector divided by labour of each sector.

Q -> The total quantity is given by the sum of quantities of different sectors

Overall productivity can be expressed as a combination of EY (productivity of each sectormultiplate with li/ L as the share of the employement of that sector,

If we want to understand the change (positive or negative) in productivity there's the delta, this change is made of two components: it's either a change in the sector of productivity but labour stays where it is, share of labour for each sector doesn't change, it is within the sector productivity that is changing or sector productivity doesn't change, what is changing is the share of people working in that sector. A change in overall productivity can come either from or within components of productivity growth so if the change is positive we see deltaY rising because we have within components of productivity growth so some of the sectors are growing in terms of productivity but workers still do the same or it is not changing within the sectors what is changing is the share of employment - people moving from one sector to the other, these two components are called within component of the productivity growth.

or structural change component→ it is measuring the amount of people employed in one sector and on the other. You might observe in country that for example ICT sector becomes more productive because it is changing its technology for instance and people are learning to do produce high quality goods (faster computers) that will be an increasing learning component or you might observe that the ICT sector remains the same it’s quite a highly productive sector and you have more people working in the ICT→ that will be a structural change component as the share of the employment in that specific sector.

Basic intuition→ a high rate of productivity growth within an industry can have quite ambiguous implications, moreover economic performance in that industry share of employment is shrinking rather than it expands. Think about those countries where ICT sector is becoming more and more productive, people are going working in another sector that has ambiguous kind of results in terms of