Structural transformation in emerging economies: leading sectors and the balanced growth hypothesis

Abstract

The paper uses the World Input-Output Database to address patterns of structural transformation in BRIC countries, Indonesia, South Korea, Mexico and Turkey. Sectoral drivers of aggregate labour productivity growth, and the relative importance of within-sector versus employment reallocation effects on aggregate labour productivity growth, are evaluated using growth accounting decomposition methods. Decomposition results are used to assess how patterns of structural transformation relate to macroeconomic performance in terms of aggregate labour productivity, output and employment growth. Together with the construction of ‘Hirschman compliance indices’, decomposition results are also used to shed light on the balanced versus unbalanced growth debates. The paper goes on to assess the extent of complementarities between manufacturing and information and communications technology-intensive advanced services through intermediate inputs, comparing the eight emerging countries with G7 countries over time.