The role of structural change in the economic development of Asian economies

Abstract

In this paper, we combine data on gross domestic product (GDP) per capita and sectoral employment shares to undertake a decomposition of GDP per capita growth for a sample of 43 Asian and non-Asian economies. We decompose income changes into three components: (i) changes in labor productivity within sectors, (ii) employment shifts across sectors (structural change), and (iii) changes in the intensity of employment participation. We then compare the decomposition results for the Asian economies that moved between different income levels of interest with those from a representative typical economy and other comparison economies. The results suggest that in most Asian economies labor productivity growth was the dominant source of gains in GDP per capita, with the observed gains in labor productivity often driven by changing labor productivity within sectors rather than by shifts in employment across sectors. This is not to diminish the role of structural change, which at lower income levels can explain a significant proportion of overall labor productivity growth.