Publication: Barriers to Growth-Enhancing Structural Transformation: The Role of Subnational Differences in Intersectoral Productivity Gaps
Loading...
Date
2021-06
ISSN
Published
2021-06
Author(s)
Paul, Saumik
Editor(s)
Abstract
The movement of workers from the farm sector to a more productive nonfarm sector has failed to generate significant gains in labor productivity in recent decades in many developing countries. This paper offers a new perspective on the barriers to growth-enhancing structural transformation, combining structural modeling with enterprise census data from Ghana. The paper argues that subnational differences in the intersectoral productivity gap between the nonfarm informal and formal sectors constrain the productivity gain from structural transformation. In Ghana, intersectoral productivity gaps among the richer regions are on average three times larger than among the poorer regions. The disparity in regional intersectoral productivity gaps is modeled as reflecting the disparity in the regional misallocation of labor between the informal and formal sectors. Misallocation is identified as the output wedge between the informal and formal sectors. Simulations suggest that a more productive nonfarm informal sector reduces the disparity in regional intersectoral productivity gaps and, in turn, increases national productivity and the contribution of structural transformation to national productivity. For example, a 90-percent reduction in the disparity in regional intersectoral productivity gaps raises Ghana’s national aggregate productivity by 11.9 percent and the contribution of structural transformation to productivity by 19.7 percent.
Link to Data Set
Citation
“Paul, Saumik; Raju, Dhushyanth. 2021. Barriers to Growth-Enhancing Structural Transformation: The Role of Subnational Differences in Intersectoral Productivity Gaps. Policy Research Working Paper;No. 9683. © World Bank. http://hdl.handle.net/10986/35645 License: CC BY 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Publication The Asymmetric Bank Distress Amplifier of Recessions(Washington, DC: World Bank, 2025-07-11)One defining feature of financial crises, evident in U.S. and international data, is asymmetric bank distress—concentrated losses on a subset of banks. This paper proposes a model in which shocks to borrowers’ productivity dispersion lead to asymmetric bank losses. The framework exhibits a “bank distress amplifier,” exacerbating economic downturns by causing costly bank failures and raising uncertainty about the solvency of banks, thereby pushing banks to deleverage. Quantitative analysis shows that the bank distress amplifier doubles investment decline and increases the spread by 2.5 times during the Great Recession compared to a standard financial accelerator model. The mechanism helps explain how a seemingly small shock can sometimes trigger a large crisis.Publication From Tailwinds to Headwinds(Washington, DC: World Bank, 2025-07-10)The first quarter of the twenty-first century has been transformative for emerging market and developing economies (EMDEs). These economies now account for about 45 percent of global GDP, up from about 25 percent in 2000, a trend driven by robust collective growth in the three largest EMDEs—China, India, and Brazil (the EM3). Collectively, EMDEs have contributed about 60 percent of annual global growth since 2000, on average, double the share during the 1990s. Their ascendance was powered by swift global trade and financial integration, especially during the first decade of the century. Interdependence among these economies has also increased markedly. Today, nearly half of goods exports from EMDEs go to other EMDEs, compared to one-quarter in 2000. As cross-border linkages have strengthened, business cycles among EMDEs and between EMDEs and advanced economies have become more synchronized, and a distinct EMDE business cycle has emerged. Cross-border business cycle spillovers from the EM3 to other EMDEs are sizable, at about half of the magnitude of spillovers from the largest advanced economies (the United States, the euro area, and Japan). Yet EMDEs confront a host of headwinds at the turn of the second quarter of the century. Progress implementing structural reforms in many of these economies has stalled. Globally, protectionist measures and geopolitical fragmentation have risen sharply. High debt burdens, demographic shifts, and the rising costs of climate change weigh on economic prospects. A successful policy approach to accelerate growth and development should focus on boosting investment and productivity, navigating a difficult external environment, and enhancing macroeconomic stability.Publication Intergenerational Income Mobility around the World(Washington, DC: World Bank, 2025-07-09)This paper introduces a new global database with estimates of intergenerational income mobility for 87 countries, covering 84 percent of the world’s population. This marks a notable expansion of the cross-country evidence base on income mobility, particularly among low- and middle-income countries. The estimates indicate that the negative association between income mobility and inequality (known as the Great Gatsby Curve) continues to hold across this wider range of countries. The database also reveals a positive association between income mobility and national income per capita, suggesting that countries achieve higher levels of intergenerational mobility as they grow richer.Publication The Macroeconomic Implications of Climate Change Impacts and Adaptation Options(Washington, DC: World Bank, 2025-05-29)Estimating the macroeconomic implications of climate change impacts and adaptation options is a topic of intense research. This paper presents a framework in the World Bank's macrostructural model to assess climate-related damages. This approach has been used in many Country Climate and Development Reports, a World Bank diagnostic that identifies priorities to ensure continued development in spite of climate change and climate policy objectives. The methodology captures a set of impact channels through which climate change affects the economy by (1) connecting a set of biophysical models to the macroeconomic model and (2) exploring a set of development and climate scenarios. The paper summarizes the results for five countries, highlighting the sources and magnitudes of their vulnerability --- with estimated gross domestic product losses in 2050 exceeding 10 percent of gross domestic product in some countries and scenarios, although only a small set of impact channels is included. The paper also presents estimates of the macroeconomic gains from sector-level adaptation interventions, considering their upfront costs and avoided climate impacts and finding significant net gross domestic product gains from adaptation opportunities identified in the Country Climate and Development Reports. Finally, the paper discusses the limits of current modeling approaches, and their complementarity with empirical approaches based on historical data series. The integrated modeling approach proposed in this paper can inform policymakers as they make proactive decisions on climate change adaptation and resilience.Publication Global Poverty Revisited Using 2021 PPPs and New Data on Consumption(Washington, DC: World Bank, 2025-06-05)Recent improvements in survey methodologies have increased measured consumption in many low- and lower-middle-income countries that now collect a more comprehensive measure of household consumption. Faced with such methodological changes, countries have frequently revised upward their national poverty lines to make them appropriate for the new measures of consumption. This in turn affects the World Bank’s global poverty lines when they are periodically revised. The international poverty line, which is based on the typical poverty line in low-income countries, increases by around 40 percent to $3.00 when the more recent national poverty lines as well as the 2021 purchasing power parities are incorporated. The net impact of the changes in international prices, the poverty line, and new survey data (including new data for India) is an increase in global extreme poverty by some 125 million people in 2022, and a significant shift of poverty away from South Asia and toward Sub-Saharan Africa. The changes at higher poverty lines, which are more relevant to middle-income countries, are mixed.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Sectoral Productivity Shock, Regional Differences in Intersectoral Linkages, and Structural Transformation in Ghana(World Bank, Washington, DC, 2023-05-17)This paper studies the effect of a local sectoral productivity shock on subnational structural transformation. The analysis is based on regional input-output tables constructed for 2004 and 2013 and available censuses of firms in 2003 and 2013 for Ghana. Based on the data, the analysis confirms the occurrence of a mining productivity shock. Between 2004 and 2013, mining grew dramatically as a share of gross domestic product. The mining shock occurred primarily in the south of Ghana with much larger increases in mining’s share in regional output, the number of mining firms, and mining employment than in the north of the country. The findings show that the mining productivity shock led to growing regional (north-south) differences in intersectoral linkages, with greater intermediate use of mining output and a larger sectoral total factor productivity ratio between mining and manufacturing in the south than in the north. Informed by international evidence of strong intersectoral linkages between mining and heavy manufacturing industries, the paper examines the performance of heavy manufacturing in response to the mining productivity shock. The elasticity of heavy manufacturing to mining employment growth is 50 percent larger in the south than in the north, generated by an increase in both average firm employment and the entry of new firms. These north-south differences are interpreted as possibly due to weak interregional production linkages.Publication Structural Transformation and Labor Market Performance in Ghana(World Bank, Washington, DC, 2020-11-24)Structural transformation can spur economic growth and development if it increases overall productivity growth. A labor market environment that enables workers and enterprises to transition smoothly across sectors and into more productive economic pursuits can enhance the effect of structural transformation on economic growth. This study examines Ghana’s recent record of structural transformation and labor market performance. Based on the findings, the study proposes ways to further transform the country’s economy, in a way that stimulates stronger, sustained growth and produces gainful, productive, and inclusive private employment. The COVID-19 (coronavirus) pandemic and associated global economic crisis have posed a substantial setback to Ghana’s economic progress and plans, but these challenges also underscore the need for structural transformation that can both strengthen economic performance and improve labor conditions and outcomes.Publication Is Informality Welfare-Enhancing Structural Transformation? Evidence from Uganda(2011-10-01)While Africa's recent decade of growth and poverty reduction performance has been lauded, concern has been expressed regarding the structure of this growth. In particular, questions have been raised about whether the growth is based on a commodities boom, or whether it is the beginning of a structural transformation that will lift workers from low-productivity jobs into higher-productivity ones. Macro evidence has suggested that the structural transformation has not started. But macro analysis misses the evidence that the process of transformation has started, because this process begins at the household level. Household livelihoods do not move from ones based on subsistence farming and household level economic activities into livelihoods based on individual wage and salary employment away from the household in one leap -- this process takes generations. The intermediate step is the productive informal sector. It is income gains at the household level in this sector that fuel productivity increases, savings, and investment in human capital in this sector. Ensuring that most households are able to diversify their livelihoods into the non-farm sector through productive informality not only increases growth, but also allows the majority of the population to share in the growth process. This paper illustrates this point with the case of Uganda which followed this path and experienced two decades of sustained growth and poverty reduction.Publication Thailand - Social and Structural Review : Beyond the Crisis - Structural Reform for Stable Growth(Washington, DC, 2000-01-25)Following the East Asian financial crisis, the Bank's involvement in Thailand intensified, enabling a multifaceted stabilization, and structural reform dialogue, which deepened the economic, financial, and sector knowledge of the country. The study benefits from this analytical work, and provides an overview on the ongoing policy dialogue, regarding short- and medium-term reform, through a number of instruments. To promote longer-term growth, the country embarked on a twin strategy of macroeconomic stabilization, and structural reform. Although its flexible labor market, and support mechanisms diminished the crisis' impact on unemployment, and poverty, compared to other countries in the region, this ability to moderate the impact of the economic crisis, could adversely impact a prolonged crisis. The study examines steps to strengthen public sector social programs, and institutional capacity, envisaging coherent poverty support programs in a timely manner, while speeding fiscal stimulus effects, and, monitoring poverty through reliable information, to ensure cost-effectiveness. The financial sector reform is reviewed, focusing on restructuring financial institutions, while upgrading prudential regulations. Practices to improve private sector development are reviewed, i.e., promote corporate restructuring, and competition, and, improve factors of production, while promising a stable growth.Publication Does Financial Structure Matter for Poverty? Evidence from Developing Countries(2011-12-01)Although there has been research looking at the relationship between the structure of the financial system and economic growth, much less work has dealt with the importance of bank-based versus market-based financial systems for poverty and income distribution. Empirical evidence has indicated that the structure of the financial system has little relevance for economic growth, suggesting that the same could be true for poverty since growth is an important driver in reducing poverty. Some theories, however, claim that, by reducing information and transaction costs, the development of bank-based financial systems could exert a particularly large impact on the poor. This paper looks at a sample of 47 developing economies from 1984 through 2008. The results suggest that when institutions are weak, bank-based financial systems are better at reducing poverty and, as institutions develop, market-based financial systems can turn out to be beneficial for the poor.
Users also downloaded
Showing related downloaded files
Publication Classroom Assessment to Support Foundational Literacy(Washington, DC: World Bank, 2025-03-21)This document focuses primarily on how classroom assessment activities can measure students’ literacy skills as they progress along a learning trajectory towards reading fluently and with comprehension by the end of primary school grades. The document addresses considerations regarding the design and implementation of early grade reading classroom assessment, provides examples of assessment activities from a variety of countries and contexts, and discusses the importance of incorporating classroom assessment practices into teacher training and professional development opportunities for teachers. The structure of the document is as follows. The first section presents definitions and addresses basic questions on classroom assessment. Section 2 covers the intersection between assessment and early grade reading by discussing how learning assessment can measure early grade reading skills following the reading learning trajectory. Section 3 compares some of the most common early grade literacy assessment tools with respect to the early grade reading skills and developmental phases. Section 4 of the document addresses teacher training considerations in developing, scoring, and using early grade reading assessment. Additional issues in assessing reading skills in the classroom and using assessment results to improve teaching and learning are reviewed in section 5. Throughout the document, country cases are presented to demonstrate how assessment activities can be implemented in the classroom in different contexts.Publication Argentina Country Climate and Development Report(World Bank, Washington, DC, 2022-11)The Argentina Country Climate and Development Report (CCDR) explores opportunities and identifies trade-offs for aligning Argentina’s growth and poverty reduction policies with its commitments on, and its ability to withstand, climate change. It assesses how the country can: reduce its vulnerability to climate shocks through targeted public and private investments and adequation of social protection. The report also shows how Argentina can seize the benefits of a global decarbonization path to sustain a more robust economic growth through further development of Argentina’s potential for renewable energy, energy efficiency actions, the lithium value chain, as well as climate-smart agriculture (and land use) options. Given Argentina’s context, this CCDR focuses on win-win policies and investments, which have large co-benefits or can contribute to raising the country’s growth while helping to adapt the economy, also considering how human capital actions can accompany a just transition.Publication The Journey Ahead(Washington, DC: World Bank, 2024-10-31)The Journey Ahead: Supporting Successful Migration in Europe and Central Asia provides an in-depth analysis of international migration in Europe and Central Asia (ECA) and the implications for policy making. By identifying challenges and opportunities associated with migration in the region, it aims to inform a more nuanced, evidencebased debate on the costs and benefits of cross-border mobility. Using data-driven insights and new analysis, the report shows that migration has been an engine of prosperity and has helped address some of ECA’s demographic and socioeconomic disparities. Yet, migration’s full economic potential remains untapped. The report identifies multiple barriers keeping migration from achieving its full potential. Crucially, it argues that policies in both origin and destination countries can help maximize the development impacts of migration and effectively manage the economic, social, and political costs. Drawing from a wide range of literature, country experiences, and novel analysis, The Journey Ahead presents actionable policy options to enhance the benefits of migration for destination and origin countries and migrants themselves. Some measures can be taken unilaterally by countries, whereas others require close bilateral or regional coordination. The recommendations are tailored to different types of migration— forced displacement as well as high-skilled and low-skilled economic migration—and from the perspectives of both sending and receiving countries. This report serves as a comprehensive resource for governments, development partners, and other stakeholders throughout Europe and Central Asia, where the richness and diversity of migration experiences provide valuable insights for policy makers in other regions of the world.Publication Lebanon Economic Monitor, Fall 2022(Washington, DC, 2022-11)The economy continues to contract, albeit at a somewhat slower pace. Public finances improved in 2021, but only because spending collapsed faster than revenue generation. Testament to the continued atrophy of Lebanon’s economy, the Lebanese Pound continues to depreciate sharply. The sharp deterioration in the currency continues to drive surging inflation, in triple digits since July 2020, impacting the poor and vulnerable the most. An unprecedented institutional vacuum will likely further delay any agreement on crisis resolution and much needed reforms; this includes prior actions as part of the April 2022 International Monetary Fund (IMF) staff-level agreement (SLA). Divergent views among key stakeholders on how to distribute the financial losses remains the main bottleneck for reaching an agreement on a comprehensive reform agenda. Lebanon needs to urgently adopt a domestic, equitable, and comprehensive solution that is predicated on: (i) addressing upfront the balance sheet impairments, (ii) restoring liquidity, and (iii) adhering to sound global practices of bail-in solutions based on a hierarchy of creditors (starting with banks’ shareholders) that protects small depositors.Publication World Development Report 2006(Washington, DC, 2005)This year’s Word Development Report (WDR), the twenty-eighth, looks at the role of equity in the development process. It defines equity in terms of two basic principles. The first is equal opportunities: that a person’s chances in life should be determined by his or her talents and efforts, rather than by pre-determined circumstances such as race, gender, social or family background. The second principle is the avoidance of extreme deprivation in outcomes, particularly in health, education and consumption levels. This principle thus includes the objective of poverty reduction. The report’s main message is that, in the long run, the pursuit of equity and the pursuit of economic prosperity are complementary. In addition to detailed chapters exploring these and related issues, the Report contains selected data from the World Development Indicators 2005‹an appendix of economic and social data for over 200 countries. This Report offers practical insights for policymakers, executives, scholars, and all those with an interest in economic development.