We provide a conceptional contribution: A growth decomposition framework in two steps.
The framework considers a sectoral as well as a subnational dimension.
The application of the framework is discussed from the Development Economics perspective: We assess the role of structural change in productivity growth in an economy.
We provide an application with data of the Mexican Economy. Mexico appears to be an appropriate country case for our purpose because there are substantial differences across sectors and subnational units (Mexican states).
Abstract In this article, we investigate the relevance of structural change in country-wide productivity growth considering within-country differences. For this purpose, we propose a two-step decomposition approach that accounts for heterogeneity among subnational units. In this regard, we consider structural change in terms of a labor reallocation across sectors. To highlight the relevance of our procedure compared to the prevalent decomposition approach in the existing development literature (which usually neglects subnational differences), we show an application with data for the Mexican economy. Specifically, we contrast findings obtained from country-sector data on the one hand with those obtained from (more disaggregated) state-sector data on the other hand. The results of the two approaches differ substantially - in quantitative and qualitative terms. While the prevalent approach suggests a (moderate) growth-enhancing effect of structural change between 2005 and 2016, our two-step procedure reveals that structural change appeared to be growth-reducing during that period. An extension of our decomposition suggests that this negative effect is mainly driven by the reallocation of low-skilled labor within subnational units (i.e. within Mexican states). Finally, our work illustrates the relevance of potential heterogeneity within a country while analyzing country-wide dynamics such as the structural change process.
Presented at the following events
Workshop on The Future of Industrial Work, UNIDO, Vienna, Austria (09/2019)
Brainbag Workshop, School of Economics, University of Adelaide, Adelaide, Australia (03/2019)