Mr. Serhan Cevik, Jan Gottschalk, Mr. Eric Hutton, Laura Jaramillo, Pooja Karnane, and Moussé Sow
Structural transformation has resulted in an increasing share of services in aggregate value-added in advanced and developing countries across the world. We analyze the impact of this shift into services on countries’ efficiency in collecting the value-added tax (VAT). The analysis is based on two alternative measures of VAT efficiency: (1) the VAT C-efficiency, using a broad panel of 134 countries over the period 1970-2014; and (2) the VAT gap using a more granular, proprietary dataset that draws on the results of IMF’s Revenue Administraion-Gap Analysis Program covering 24 countries over the period 2004-2016. We find that a higher share of services in aggregate value-added reduces the VAT efficiency, and that this adverse effect is mainly a result of a rise of non-tradable services, which in turn contributes to a narrowing of the VAT base.
Manoj Atolia, Mr. Prakash Loungani, Milton Marquis, and Mr. Chris Papageorgiou
This paper takes a fresh look at the current theories of structural transformation and the role of
private and public fundamentals in the process. It summarizes some representative past and
current experiences of various countries vis-a-vis structural transformation with a focus on the
roles of manufacturing, policy, and the international environment in shaping the trajectory of
structural transformation. The salient aspects of the current debate on premature
deindustrialization and its relation to a middle-income trap are described as they relate to the
path of structural transformation. Conclusions are drawn regarding prospective future paths for
structural transformation and development policies.
Evidence that the automation of routine tasks has contributed to the polarization of labor markets has
been documented for many developed economies, but little is known about its incidence in developing
economies. We propose a measure of the exposure to routinization—that is, the risk of the displacement
of labor by information technology—and assemble several facts that link the exposure to routinization
with the prospects of polarization. Drawing on exposures for about 85 countries since 1990, we establish
that: (1) developing economies are significantly less exposed to routinization than their developed
counterparts; (2) the initial exposure to routinization is a strong predictor of the long-run exposure; and
(3) among countries with high initial exposures to routinization, polarization dynamics have been strong
and subsequent exposures have fallen; while among those with low initial exposure, the globalization of
trade and structural transformation have prevailed and routine exposures have risen. Although we find
little evidence of polarization in developing countries thus far, with rapidly rising exposures to
routinization, the risks of future labor market polarization have escalated with potentially significant
consequences for productivity, growth and distribution.
Khalid ElFayoumi, Anta Ndoye, Miss Sanaa Nadeem, and Gregory Auclair
Institutional and market frictions impose costs on the reallocation of labor from low to high
productivity sectors, leading to suboptimal allocations and a loss in aggregate labor productivity.
Using cross-country sector-level data, we use a dynamic panel error correction model to compute
the speed of sectoral labor adjustment, as well as the contribution of structural reforms in
governance, labor and product markets, trade and openness, and the financial sector to lowering
the costs of labor reallocation. We find that, on average, sectoral employment shares converge
towards equilibrium allocations, closing about 13.7 percent of labor productivity gaps each year;
this speed of labor adjustment varies across sectors and income groups. On structural reforms, we
find a significant association between more efficient labor reallocation and financial market
liberalization, less bureaucracy, strong judicial and regulatory environment, trade liberalization,
better education and more flexible labor and product markets.
This paper examines the role of removing obstacles to competition in product markets in raising growth and productivity. Using firm-level data from Italy during 2003–13 and OECD measures of product market regulation, we estimate the effect of deregulation in network sectors on value added and productivity of firms in these sectors, as well as firms using these intermediates in their production processes. We find evidence of a significant positive impact. These effects are more pronounced in Italian provinces with more efficient public administration, underscoring the complementarities of advancing public administration and product market reforms simultaneously.
This Selected Issues paper examines growth, structural transformation, and diversification in Mali. At present, the majority of Mali's population is employed in low-productivity agriculture, and the secondary sector is underdeveloped. Further structural transformation and diversification of output and exports could thus yield significant growth dividends, but will be challenging in the context of a rapid projected increase in the workforce over coming decades, much of which would need to be absorbed by the agricultural sector. Policies could focus on easing the constraints to structural transformation in key areas such as education and the business climate, as well as devising a clear strategy for tackling the challenges posed by rapid population growth.
This Selected Issues paper discusses the assessment of economic activity in Togo in absence of quarterly GDP series. Togo collects about 40 macroeconomic indicators monthly that span a wide range of sectors of the economy. The selection of the variables for the economic activity index is conducted by finding the combination of variables. The indicators are aggregated into an index using a methodology used by the Conference Board. Then an economic activity index is constructed that effectively replicates the historical growth rates of real GDP in Togo. The selected index minimizes the deviations between the growth rates of the indicator and actual real GDP growth over 2002–13.