Structural transformation and globalization

Since the pioneering empirical works of Colin Clark, Alan Fisher, and Simon Kuznets, economists have agreed that the achievement of sustained economic growth, and a permanently higher level of income per capita, is strongly associated in the data with a structural transformation. In this transformation, a substantial and permanent shift occurs in the composition of income, output, and employment away from agriculture and towards industry and services. This thesis comprises three essays on structural transformation in a global world.;Chapter 1 studies the modern economic growth and structural transformation in China. The dramatic growth of China's role in the world economy is one of the central topics of the current research in international macroeconomics. China's economic reform, which started in 1978, has driven a rapid transition of the economy from a central planning system toward a market-oriented system integrating with the world economy. This chapter examines the industrialization of China since 1978 and documents some of stylized facts for the structural transformation of the Chinese economy between 1978 and 2005. I lay out a sectoral growth accounting exercise and link sectoral productivity growths to the institutional reforms throughout period, which have had impact on the structural transformation of China. I find that the productivity growth in industry has been the "engine" of aggregate productivity for the Chinese economy since 1978.;Chapter 2 studies the impact of the industrialization of China on the industrial employment share observed in the U.S. between 1978 and 2005. As the current wave of globalization intensifies, industrialized nations are exposed to new competition in domestic and foreign markets. Reductions in trade costs and widespread economic reforms may cause shifts of comparative advantage across nations which effect domestic and international reallocations of production factors. A two-country, three-sector model is developed, in which countries trade industrial goods due to the assumptions that production of different industrial goods is country specific; and goods are differentiated by the productivity with which they are domestically produced. These features of the model and the degree of substitutability in preferences between home and foreign produced units of industrial good endogenously determine a country's equilibrium pattern of production and trade.;A comparison of the predictions of open and closed economy models suggests that a common explanation of de-industrialization in the literature, which is based on increased productivity in industry relative to services in a closed economy setting, is not compelling. My benchmark results suggest that the closed economy model accounts for 38.1 percent of the declines in the U.S. industrial employment share while the open economy accounts for 68.0 percent of the de-industrialization in the U.S. between 1978 and 2005. Moreover, the open economy model has more explanatory power to explain the secular changes in the U.S. industrial employment share in the post-1990 period. The open economy model accounts for 85.1 percent of the de-industrialization while the closed economy accounts for 37.4 percent of the de-industrialization in the U.S. between 1992 and 2005. Counterfactual experiments show that if the Chinese economy had experienced productivity in industry equal to that of the U.S., then the role of openness would have been diminished. The higher the elasticity of substitution between home and foreign industrial goods is, the more accelerated structural transformation in the U.S.;Chapter 3 tries to answer the following question: Can differences in sectoral productivity growth rates account for the different structural transformation experiences of Latin America and East Asia? In the comparative analysis of economic performance in terms of structural change and the sectoral productivity differences, the contrast between East Asia and Latin America is striking. The contribution of this chapter is developing a simple, but relatively detailed, six-sector general equilibrium model and applying it to a nine Latin American and four East Asian countries using a new data set. Over the period 1974 to 2003, Latin American countries exhibit much slower deagriculturalization than East Asian countries, while the manufacturing employment share has been almost stagnant in Latin America but exhibits a hump shaped pattern among East Asian countries.;A multi-sector general equilibrium model, treating sectoral productivity growth rates as exogenous, accounts well for the differing sectoral reallocations of labor in Latin America and East Asia over the sample period. Several counterfactual experiments are conducted. Had Bolivia experienced the same productivity growth in agriculture that Korea has, then the agricultural employment share in Bolivia would have been 12.0 percent in 2003 rather than 27.4 percent. Similarly, if Argentina had experienced the same productivity growth in the manufacturing sector as Korea, then the manufacturing employment share in Argentina would be 4.3 percent in 2003 instead of 11.5 percent. An exploration of policy and institutional factors which account for sectoral productivity differentials across Latin America and East Asia is presented.