J01


Structural change, inequality and inclusive growth: tensions and trade-offs (Paper) 
Convenors:
Eduardo Ortiz-Juarez (King's College London )
Stream:
J: Structural transformation
Location:
G6
Start time:
28 June, 2018 at 9:00 (UTC+0)
Session slots:
2

Short Abstract:

Focused on developing countries that seek to end poverty and to pursue high growth, the panel will address the tension between structural change, associated with rising disparities between the rich and poor, and inclusive growth that is shared across society so that poverty reduction in maximised

Long Abstract

Most of the world's poor live in countries that have since the Cold War experienced rapid economic growth and substantial rises in average income per capita, unequivocal structural change of GDP, employment and exports away from agriculture, and an increase in income disparities between the richest and the poor. The UN goal of ending global poverty by 2030 will require that high growth rates are sustained and that growth is inclusive and shared across society. High and sustained growth is best driven by structural change. However, structural change is associated with rising disparities between the rich and poor. In contrast, inclusive growth is best achieved with steady or falling inequality to maximize poverty reduction. How to manage this tension or trade-off between structural change and inclusive growth is a crucial contemporary question for developing countries as they seek to end poverty as well as to pursue economic development.

The proposed panel will address this tension through the following questions: What model of economic development would ensure rapid growth and structural change with an expanding share of income for the poor? How are governments to use policies to manage this tension? Where is political mass support for the processes that drive structural change to come from? Which economic and institutional arrangements mediate the trade-offs of structural transformations in the most equitable way?

Accepted papers:

Authors:

Amrita Saha (IDS, University of Sussex)
Tommaso Ciarli (University of Sussex)

Paper short abstract:

There is little evidence in the literature on the three-way relations between innovation, structural change and inclusion. With a structural model for a short panel of developing countries over 13 years, we advance a first exercise in this direction.

Paper long abstract:

Structural change can be both, a cause or a consequence of innovation, while structural change and innovations are usually accompanied by short-term outcomes of social inclusion or exclusion. Inclusion may in turn have an impact on further innovations. Yet, the authors find little evidence in the literature on the three way relations between innovation, structural change and inclusion. This paper advances a first exercise in this direction. Given the multidimensionality of each (innovation, structural change, and inclusion), the authors extract the underlying unobserved common factor structure from various well-known macro indicators. With a structural vector auto regression model for a short panel of developing countries over 13 years, the authors find the following main results. First, the authors confirm the virtuous cycle between innovation and structural change, aligning with existing literature. Second, the strongest result is the positive effect of inclusion on both innovation and structural change, that suggests policy to improve inclusion beyond poverty and inequality. Third, on decomposing the innovation index (formal, firm-level and ICT), the authors find each related differently to both structural change and inclusion, that suggests specific policy roles in their influence on inclusion and structural change.

Author:

Kundan Mishra (University of Massachusetts Boston)

Paper short abstract:

The structural explanations of economic growth extended to rural-urban undermine the agency of migrants. Through a review of the structural approaches to rural-urban migration, this paper highlights the knowledge gaps regarding agency of migrants and proposes a framework that addresses concerns.

Paper long abstract:

In this paper, I review the literature on rural-urban migration to understand two key aspects of rural-urban migration. First, how has the theoretical relationship evolved with the changing narrative on economic development? I revisit the key efforts that understand and problematize rural-urban migration, according to the changing narratives of economic development. Second, this paper critiques the conceptualizations of agency in the theorizing of migration and highlights the lack of research on the interaction between agency and structure. Further, I argue that the household as a unit of analysis is under-researched. To this end, I summarize key empirical works to highlight the relationship between their ontological and epistemological focus. Subsequently, I argue that the household represents the interaction between structural changes and agency of migrants. With a review of human capital and human security approaches to rural-urban migration, this paper problematizes the decision to migrate in the absence of any notable improvement in well-being, exemplified by the case of seasonal migration. Through this review, the paper identifies how capabilities approach is suited to understand the agency of migrants at individual, household and community level. The paper proposes a framework to capture agency of migrants through the negotiation between the agency of a migrant household and its well-being. The paper then presents key questions towards a research agenda around the agency of migrants. While the second section lays emphasis on rural-urban migration, it also elaborates on how the framework can be adapted for other contexts of forced and voluntary migration.

Authors:

Emmanuel Buadi Mensah (UNU-MERIT)
Solomon Owusu (UNU-MERIT)
Adam Szirmai (UNU-MERIT/Maastricht University)
Neil Foster-McGregor (UNU-MERIT)

Paper short abstract:

The paper uses new and expanded sector database to analyse the role of structural transformation on the economic growth of Africa. In addition to decomposing labor productivity growth into within and structural change components, we compute the labor market turbulence effect of structural change.

Paper long abstract:

Since the construction of the Africa Sector Database (ASD) at the Groningen Growth and Development Centre (GGDC), there has been a wave of statistical reforms in some of the countries in the ASD leading to significant revaluations of GDP. These reforms have provided a clearer picture of the size and structure of production of the countries involved (Sy, 2015). We update the ASD to reflect these statistical changes. Most importantly, following the methodology of ASD, we expand the ASD by constructing sectoral data for seven new African countries. This has resulted in an expanded database (from the 1960s to 2015) covering about 80% of GDP in Sub-Sahara Africa. With this Expanded Africa Sector Database (EASD), we decompose productivity growth in Africa taking inspiration from McMillan et al (2014); and De Vries et al (2015). Productivity growth has been generally low since the 1960s with moderate contributions from structural change during the import-substitution era and the MDGs era. Although productivity growth from structural change is generally low, regional comparison show that structural change is more rapid in East Africa than the other regions of SSA. To understand whether this moderate structural change contributes to raising the income of the poor, we compute the labor market turbulence effect of structural change. Thus, are poor agricultural workers moving to high income sectors or low income sectors? We then analyze how Employment Protection Legislation affects job reallocation to low and high income sectors and its implication on poverty reduction.

Author:

Christina Wolf (Kingston University)

Paper short abstract:

This paper investigates how macroeconomic policy, in particular redistributive policies and government spending, can act in support of domestic market formation and therefore ultimately in support of structural transformation in developing countries.

Paper long abstract:

This paper investigates how macroeconomic demand-side policies can act in support of structural transformation in low-income countries. With the noticeable exception of export-demand, demand-side conditions necessary to sustain profitable commodity production have not been the explicit focus of research on industrial development and policy. This paper argues that the question how domestic markets form and under which conditions demand for commodity production remains or becomes expansionary is of particular relevance for late-industrialisers given reconfigurations of global export markets. While aggregate export earnings of many developing economies increased as a result of the commodity price boom between 2000 and 2015, export markets served less and less as outlets for manufacturing products. Asset-driven wealth accumulation (financialisation) in developed economies crowds out long-term productive investment and tends to worsen the distribution of income and wealth thereby depressing consumer demand. What is more, intense price and wage competition between developing countries for the same export markets has resulted in declining terms of trade for low value-added manufacturing products. Against this global economic context tending towards systemic deficient demand, the mobilisation of domestic sources of demand for manufacturing outlets becomes a key challenge of late-industrialisation. This paper explores demand-side dynamics relevant for manufacturing sector growth, stressing that supporting the growth of domestic markets is among other things a function of income distribution and government spending.

Authors:

Manasi Bera (Indian Institute of Dalit Studies)
Amaresh Dubey (Jawaharlal Nehru University)

Paper short abstract:

This study analyses the inclusiveness of the growth process underway in the rural economy of India by focusing on the changes in long term activity of the households and their current economic wellbeing and how the opportunities are being accessed by different social groups.

Paper long abstract:

Indian economy has undergone important structural changes leading to high growth and poverty reduction in the last few decades. Rural economy has also registered significant changes during this period. Important among them is the decline in the share of agriculture and allied sector to one third of rural NDP. However, this has not been followed by a proportional shift of workforce. This study attempts to analyse the nature and inclusiveness of structural transformation process underway in rural India since 1990s. The specific questions it asks are: How the structure of household income is changing in rural India. Whether the prosperity is shared by different social groups? What determines the shift in the main source of income of households? Two nationally representative data sources - NSS and IHDS - has been used for analysis. Findings are based on descriptive statistics and Logistic regression. Results show that though there is growth in income, and poverty rate has declined, fruits have not been distributed equally across social groups. Mobility towards more remunerative activity has been different across social groups. Marginalised social groups (SC and OBC) households show a greater shift towards other labour work (lateral mobility), Upper caste households towards better opportunities in the non-farm sector (vertical mobility), while tribal households continue to depend on land based activities. Social identity, education, land ownership, number of adults in household, occupation, and location are found to be important determinants of shift towards non-farm opportunities.

Authors:

C. Nila Warda (The SMERU Research Institute)
Elza Elmira (SMERU Research Institute)

Paper short abstract:

The study shows that structural transformation among rural people, mostly poor farmers, significantly improve their welfare. Considering their skill-gap, the village government could establish village-owned enterprises under Village Law to facilitate and empower the farmers to acquire the new skills

Paper long abstract:

Previous study showed that to let the poor equally benefit from economic growth, the right sources of growth must be identified first. In rural areas, service growth is identified to have significant impact to reduce poverty compared to agriculture or manufacture. Given that the majority of people in rural areas are working in agriculture, it remains unclear whether shifting to non-agricultural sector, particularly services, would improve their welfare considerably. This paper evaluates the impact on individual welfare in rural areas based on their decision to shift working from agricultural to non-agricultural sector in the mid-term (7 years) and the long-term (14 years). Utilizing longitudinal data, Indonesia Family Life Survey (IFLS) 1993, 1997, 2000, 2007, and 2014, we performed Propensity Score Matching (PSM), Double Difference-in-Difference (DDID), as well as generating bounds on treatment effect to address the selection bias. The findings show that in micro level the employment structural transformation in rural areas is able to significantly improve both the income and the consumption level. Therefore rural farmers, lying in bottom 15% of rural income, might catch up with the average income growth level which eventually flatten out rural inequality. This may lead to overall inequality since the majority of poor people are concentrated in rural areas. In light of this, we should also consider the skill-gap in shifting to non-agricultural job, in which the village government could utilize Village Law No. 6/2014 to establish the village-owned enterprises which could facilitate and empower the farmers to acquire the new skills.

Author:

David Potts (University of Bradford)

Paper short abstract:

This paper reviews evidence on structural change and trends in inequality in a range of Sub-Saharan African economies that have experienced varying rates of economic growth in the last twenty years.

Paper long abstract:

This paper reviews evidence on structural change and trends in inequality for a range of Sub-Saharan African economies that have experienced varying rates of economic growth in the last twenty years. The paper follows up an earlier paper that focused on a smaller number of economies and widens the scope to cover a larger selection of economies that includes both low growth economies and some Francophone countries. Comparisons will be made with between the different economies to establish potential causes of any observed differences. The paper will consider:

To what extent has economic growth been associated with structural change in the countries under consideration?

To what extent has such structural change been accompanied by changes in inequality?

Are there any structural factors that can be associated with differences in the share of economic growth accruing to the poorest groups?

Are there any common factors that explain the differences in economic performance?

Author:

Grace Kite (Gracious Economics)

Paper short abstract:

Modern structural change often involves information technology. India has a head-start relative to other developing countries but has this contributed to development, or only benefited a few already well-off people? This paper evaluates and quantifies linkages into Indian firms and households.

Paper long abstract:

Literature on India's software and information technology services (SWIS) sector is doubtful about its role in development because it finds that the sector's forward and backward linkages predominantly lead abroad. The only beneficiaries are the already well-educated workers in the SWIS sector itself and some SWIS firms. Using new data, this paper re-evaluates the sector's role and finds that there is now much more room for optimism. Domestic forward linkages have been growing very quickly and they are responsible for significant output and productivity gains in Indian sectors like telecoms, banking, and retail. Additionally, backward linkages from the sector and its employees stimulate demand for domestically produced goods and services like construction, catering, and travel. There is an increasing knock on effect on creation of low skilled jobs. Together, these effects add up to a significant contribution to India's economy, and increasingly India's people too.