Structural transformation and economic development

This dissertation consists of two essays related to the process of structural transformation and sectoral Total Factor Productivity (TFP).;The second essay asks which sectors account for the large aggregate TFP differences between rich and poor countries. The answer to this question can help us construct theories about the low productivity in developing countries. Data limitations have led researchers to find indirect methods for estimating sectoral TFPs. The existing literature uses cross-section relative prices. This essay proposes a new approach for estimating sectoral TFPs using panel data on sectoral employment shares and GDP per capita. The approach extends the neoclassical growth model to three sectors and uses it to infer sectoral TFP time series consistent with the structural transformation and GDP per capita growth of developing countries over a 40-year period. This approach has the advantage that it can identify the sectoral sources of big changes in GDP per capita in any given country. The analysis shows that developing countries are relatively the least productive in agriculture, followed by services and then industry. In terms of time series, the most striking finding is for Brazil. The analysis shows that Brazil's economic stagnation between 1980 and 2000 was primarily due to a decline in productivity in the service sector.;Understanding the sources of the large per capita income differences across countries remains a key question in economics. A way to approach the issue is to look at key features of the development process that differ across rich and poor countries. One of these features is the process of structural transformation. Kuznets included this process as one of six stylized facts of economic development. He found that developed countries all followed the same process of structural transformation. The first essay asks whether developing countries are also following a similar process. Three main findings emerge. First, developing countries are following distinct processes of structural transformation, which deviate from the path followed by developed countries in many different ways. Second, there is heterogeneity between Africa, Asia and Latin America. Third, many countries experience substantial structural transformation during periods of economic stagnation or even decline.