Developing countries in Latin America and Africa have not followed the rapid, export-oriented industrialization strategy that was used in East Asia.
Many
countries in the developing world have experienced a remarkable period of
economic development over the last several decades. Besides India and China,
which registered record growth rates, countries in sub-Saharan Africa and Latin
America have managed to match or exceed their performance of the 1960s and
first half of the 1970s.
Even
a cursory look at the recent growth champions indicates that their experience
differs greatly from the standard East Asian path. East Asian countries such as
South Korea, Taiwan, and China grew through rapid, export-oriented
industrialization. By contrast, none of the recent growth experiences outside
East Asia show evidence of rapid industrialization. Instead, Latin American
countries have experienced premature deindustrialization, while in Africa
manufacturing industries are barely holding their own in most countries.
What then is driving
economic growth in these countries and how sustainable is this growth? In The
Recent Growth Boom in Developing Economies: A Structural Change Perspective, Xinshen
Diao, Margaret McMillan, and Dani
Rodrik offer a structuralist perspective on this experience,
focusing on the role of structural change in driving economy-wide labor
productivity growth. In East Asian countries, the movement of labor from
low-productivity agriculture to modern manufacturing industries and associated
activities played a critical role. The researchers ask whether there was a
similar transformation in the recent crop of growth accelerations, and whether
the expansion of other modern activities, such as services, played the role
that industrialization played in East Asia. They examine the relationship
between patterns of structural change and labor productivity growth within
specific industries, focusing on country-specific growth accelerations that
started as early as 1988 and as late as 2003, and lasted
for at least seven years.Contrary to the experience in East Asia, these recent growth
accelerations were based on either rapid within-sector labor productivity
growth, which was the typical pattern in Latin America, or growth-increasing
structural change, the typical pattern in Africa, but rarely both at the same
time. In fact, there is a strong negative correlation between the two
components of growth across countries, with India as the sole exception. In
Latin America, within-sector labor productivity growth has been impressive, but
growth-promoting structural change has been very weak. The researchers report
that, excluding agriculture, structural change has made a negative contribution
to overall growth, meaning labor has moved from high-productivity sectors to
low-productivity activities. By contrast, the situation in Africa is the mirror
image of the Latin American case. Growth-promoting structural change has been
significant, especially in Ethiopia, Malawi, Senegal, and Tanzania, but has
been accompanied in these countries by negative labor productivity growth
within non-agricultural sectors such as manufacturing and services. This
experience stands in sharp contrast to the classic East Asian growth experience
in South Korea and China, in which both components of labor productivity
contributed strongly to overall growth. Moreover, the East Asian pattern also
seems to have been replicated in more recent Asian growth accelerations, such
as those in Bangladesh, Cambodia, Laos, Vietnam, and India.
The researchers find that the pattern in East Asia of strong
productivity growth within individual sectors, as well as a shift of economic
activity across sectors toward more productive ones, is consistent with growth
being driven mainly by positive productivity shocks to the modern sectors. The
African model, by contrast, is consistent with growth being driven not by the
modern sector, but by positive aggregate demand shocks due to foreign
transfers, for example, or productivity growth in traditional agriculture.
These patterns suggest that positive structural change in
African countries may be driven mainly from the demand side, the researchers
conclude, whether due to external transfers or induced demand effects from
increased agricultural incomes. This in turn raises the issue of the
sustainability of recent growth in Africa and highlights the importance of
productivity-enhancing public investments in areas such as education, health,
and infrastructure.