The Role of the Structural Transformation in Aggregate Productivity

In this paper, we document the reallocation of employment over time between agriculture, manufacturing, and services (the process of structural transformation) and the growth rate of sectoral labor productivity across countries. We find that countries are going through a remarkably similar process of structural transformation, although with a substantial lag for some countries. We investigate whether sectoral differences in labor productivity can account for differences in the process of structural transformation and aggregate productivity across countries. We consider a model of the structural transformation and calibrate it to the experience of the United States. We use the model to measure sectoral labor productivity differences across countries and show that these differences are large and systematic both at a point in time and over time. In particular, labor productivity differences are large in agriculture and services and smaller in manufacturing. We show that the implied sectoral labor productivity differences help explain the process of structural transformation and aggregate productivity experiences across countries