This study seeks to explain economic growth differences in an aggregate production function framework, where labor reallocation from agriculture to modern sectors influences labor efficiency growth. The econometric analysis uses a panel of 65 countries over 1960-90. The results highlight: (a) the differences in labor reallocation impact on growth, controlled for using the intersectoral wedge in labor productivities; (b) the significance of labor reallocation effects, even after controlling for capital accumulation, initial conditions, and country effects; (c) the role of slow labor reallocation in explaining the dummy variable for Sub-Saharan Africa; (d) the role of initial education levels in explaining differences in labor reallocation rates.
reallocation effects by measuring the labor input in efficiency units rather than in number of workers. The intersectoral reallocation of labor influences laborefficiency growth, and consequently output per worker growth, as soon as laborefficiency differs between sectors.
An intersectoral wedge in laborefficiency can result from different sources: (a) the normal functioning of the labor market, compensating unobserved sectoral differences in education; (b) institutional influences such as presence of unions or minimum wages laws that apply only to certain industries