Structural modernization and development traps: An empirical approach
Alejandro Lavopa & Adam Szirmai
#2014-076
In this paper we analyse economic development through the lenses of a
newly developed index: the structural modernization index. This index
combines two dimensions that have been widely invoked as prime drivers
of economic development namely, structural change and technological
catch up. For each country, the index calculates the productivity gap
with respect to the world frontier in activities that typically
represent the modern part of the economy, and weighs this relative
productivity by the employment share of those activities in the total
labour force. In doing so, it combines a technological dimension
(relative productivity) and a structural dimension (the size of the
modern sector) thus providing a concise measure of the degree of
modernity of an economy. The index is calculated for a large sample of
countries over a long time span. Significant efforts have been made to
put together a dataset with international comparable data on value added
and employment disaggregated by sectors for 100 countries covering the
period 1950-2009. The estimates are used to explore the relationship
between structural modernization and the so-called poverty and
middle-income traps. In analysing this relationship, the interactive
nature of structural change and technological catch up is stressed.
Important insights are obtained regarding the nature of low and
middle-income development traps. Finally, the usefulness of this new
index is illustrated when studying the diverse structural trajectories
of a set of countries that can be taken as examples of success and
failure in the process of economic development.
Keywords: Structural Change; Technological Catching-Up; Poverty Trap;
Middle Income Trap.
JEL classification: O11, O14, O30, O47, O50