Structural Change and Cross-Country Growth Empirics

81 Pages Posted: 20 Apr 2016

See all articles by Markus Eberhardt

Markus Eberhardt

University of Nottingham - Leverhulme Centre for Research on Globalisation and Economic Policy (GEP)

Francis Teal

University of Oxford - Department of Economics

Date Written: January 1, 2013

Abstract

One of the most striking features of economic growth is the process of structural change whereby the share of agriculture in GDP decreases as countries develop. The cross-country growth literature typically estimates an aggregate homogeneous production function or convergence regression model that abstracts from this process of structural change. This paper investigates the extent to which assumptions about aggregation and homogeneity matter for inferences regarding the nature of technology differences across countries. Using a unique World Bank dataset, it estimates production functions for agriculture and manufacturing in a panel of 40 developing and developed countries for the period from 1963 to 1992. It empirically models dimensions of heterogeneity across countries, allowing for different choices of technology within both sectors. The paper argues that heterogeneity is important within sectors across countries implying that an analysis of aggregate data will not produce useful measures of the nature of the technology or productivity. It shows that many of the puzzling elements in aggregate cross-country empirics can be explained by inappropriate aggregation across heterogeneous sectors.

Keywords: Economic Theory & Research, E-Business, ICT Policy and Strategies, Economic Growth, Statistical & Mathematical Sciences

Suggested Citation

Eberhardt, Markus and Teal, Francis, Structural Change and Cross-Country Growth Empirics (January 1, 2013). World Bank Policy Research Working Paper No. 6335, Available at SSRN: https://ssrn.com/abstract=2206183

Markus Eberhardt

University of Nottingham - Leverhulme Centre for Research on Globalisation and Economic Policy (GEP) ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

Francis Teal

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

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