Answer to Question #283752 in Macroeconomics for ABEX

Question

42. On the structural transformation:

(a) Define structural transformation.

(b) List and discuss at least three stylized facts of structural transformation.

(c) Are high growth in per capita income and high rate of capital accumulations the sufficient conditions for structural transformation to occur? Explain

Answer 1

(a) Structural transformation is defined as the transition of an economy from low productivity and labour- intensive economic activities to higher productivity and skill intensive activities.

(b) The conventional view of structural transformation is informed by three stylized facts of economic development:

(i) all economies exhibit declining employment in agriculture,

(ii) all economies exhibit a hump-shaped share of employment in industry, and

(iii) all economies exhibit an increasing share of employment in services.

(c) High growth in per capita income and high rate of capital accumulations are the sufficient conditions for structural transformation to occur.