A key feature of developing economies is that wages in agriculture are significantly
below those of other sectors. Using Brazilian household surveys and administrative
panel data, I use information on workers who switch sectors to decompose the drivers
of this gap. I find that most of the gap is explained by differences in worker composition.
The evidence speaks against the existence of large short-term gains from reallocating
workers out of agriculture and favors recently proposed Roy models of inter-sector
sorting. A calibrated sorting model of structural transformation can account for the
wage gap level observed and its decline as the economy transitioned out of agriculture.
The process of economic development is characterized by substantial reallocations of resources
across sectors. In this paper, we construct a multi-sector model in which there are barriers to the
movement of labor from low-productivity traditional agriculture to modern sectors. With the barrier
in place, we show that improvements in productivity in modern sectors (including agriculture) or
reductions in transportation costs may lead to a rise in agricultural employment and through terms-oftrade
effects may harm subsistence farmers if the traditional subsistence sector is larger than a critical
level. This suggests that policy advice based on the earlier literature needs to be revised. Reducing
barriers to mobility (through reductions in the cost of skill acquisition and institutional changes) and
improving the productivity of subsistence farmers needs to precede policies designed to increase the
productivity of modern sectors or decrease transportation costs.
Diversification and structural transformation play important roles in influencing the macroeconomic performance of low-income countries (LICs). Increases in income per capita at early stages of development are typically accompanied by a transformation in a country’s production and export structure. This can include diversification into new products and trading partners as well as increases in the quality of existing products.
Ms. Era Dabla-Norris, Mr. Alun H. Thomas, Mr. Rodrigo Garcia-Verdu, and Ms. Yingyuan Chen
This paper documents stylized facts on the process of structural transformation around the world and empirically analyzes its determinants using data on real value added by sector of economic activity (agriculture, manufacturing and services) for a panel of 168 countries over the period 1970-2010. The analysis points to large differences in sector shares both across and within regions as well as for countries at similar levels of economic development. Using both linear and quantile regression methods, it finds that a large proportion of the cross-country variation in sector shares can be accounted for by country characteristics, such as real GDP per capita, demographic structure, and population size. It also finds that policy and insitutional variables, such as product market reforms, openness to trade, human and physical capital, and finance improve the baseline model’s ability to account for the variation in sectoral shares across countries.
Christian Henn, Mr. Chris Papageorgiou, and Mr. Nikola Spatafora
This paper develops new, far more extensive estimates of export quality, covering 178 countries and hundreds of products over 1962–2010. Quality upgrading is particularly rapid during the early stages of development, with quality convergence largely completed as a country reaches upper middle-income status. There is significant cross-country heterogeneity in quality growth rates. Within any given product line, quality converges both conditionally and unconditionally to the world frontier; increases in institutional quality and human capital are associated with faster quality upgrading. In turn, faster growth in quality is associated with more rapid output growth. The evidence suggests that quality upgrading is best encouraged through a broadly conducive domestic environment, rather than sector-specific policies. Diversification is important to create new upgrading opportunities.
International Monetary Fund. Asia and Pacific Dept
The Sixth Five Year Plan, as outlined in Bangladesh's Poverty Reduction Strategy Paper, targets strategic growth and employment. The medium-term macroeconomic framework plan entails the involvement of both the private and public sectors. Human resources development strategy programs reaching out to the poor and the vulnerable population, as well as environment, climate change, and disaster risk management, have been included in the plan. Managing regional disparities for shared growth and strategy for raising farm productivity and agricultural growth have been outlined. Diversifying exports and developing a dynamic manufacturing sector are all inclusive in the proposed plan.
Technology is generating a global convergence. A "big bang" of information—and education as well—is improving human lives. And with global interconnectivity growing by leaps and bounds, we are all witness to a rapid spread of information and ideas. But, as we have seen from the prolonged global financial crisis, our interconnectedness carries grave risks as well as benefits. This issue of F&D looks at different aspects of interconnectedness, globally and in Asia. • Brookings VP Kemal Devis presents the three fundamental trends in the global economy affecting the balance between east and west in "World Economy: Convergence, Interdependence, and Divergence." • In "Financial Regionalism," Akihiro Kawai and Domenico Lombardi tell us how regional arrangements are helping global financial stability. • In "Migration Meets Slow Growth," Migration Policy Institute president Demetrios Papademetriou examines how the global movement of workers will change as the economic crisis continues in advanced economies. • "Caught in the Web" explains new ways of looking at financial interconnections in a globalized world. • IMF Managing Director Christine Lagarde provides her take on the benefits of integration and the risks of fragmentation in "Straight Talk." Also in this issue, we take a closer look at interconnectedness across Asia as we explore how trade across the region is affected by China's falling trade surplus, how India and China might learn from each others' success, and what Myanmar's reintegration into the global economy means for its people. F&D's People in Economics series profiles Justin Yifu Lin, first developing country World Bank economist, and the Back to Basics series explains the origins and evolution of money.
In this study, during 2008, the financial crisis lead Iceland’s public debt to soar from under 30 percent of GDP to more than 100 percent of GDP, and while underlying external debt came down sharply, it remains elevated at close to 300 percent of GDP. First, external sustainability is overviewed, and second, growth of Iceland’s economy has been challenged, and finally, fiscal adjustments and its macroeconomic impacts are overviewed. Traditional external debt sustainability analysis (DSA) suggests that Iceland’s external debt is sustainable but is vulnerable to depreciation shock.