Structural Change, Economic Policy, and Development

This study is about the growth and development performance of non-industrialized regions in the latter part of the 20th century. We find that sustained per capita GDP growth was accompanied by structural change in terms of output and labor share shifts as well as productivity growth with (in some cases) strong reallocation effects due to movements of labor from low to high productivity sectors. Regions that did not enjoy per capita growth showed little structural evolution apart from a rising employment/population ratio in service sectors. On the demand side, we examine shifts in net borrowing by the private sector, government, and rest of the world. Mutually offsetting co-movements of government and foreign net borrowing occurred sporadically at most. In other words, the widely accepted “twin deficits” view of macro adjustment does not seem to apply. Macroeconomic flexibility, on the other hand, may be very important. The policy background for these findings is sketched out along with a critique of justifications provided by the World Bank. Proposals are advanced for policy changes.