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Structural change, fundamentals, and growth: A framework and case studies: SynopsisCan developing countries use industrialization, as the East Asian economies did, to try to catch up with the high-income countries? Structural Change, Fundamentals, and Growth says the answer is likely to be “no.” Rather, they will need to chart a new path to economic convergence that relies less on moving from low-productivity agriculture to higher-productivity manufacturing, and more on investing in health, education, and institutions—although the process will take longer this way.
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Structural change, fundamentals, and growth: A framework and case studiesThe volume consists of an overview and seven country studies, written by leading scholars from both developed and developing countries. The overview lays out a unifying framework for thinking about economic growth as a combination of two challenges. The “structural change challenge” is focused on moving resources from traditional low-productivity activities into modern, more productive industries. The “fundamentals challenge” faced by policy makers in the developing world is about how best to develop broad capabilities such as human capital and infrastructure. While the two are inextricably linked, they are conceptually different, and making this distinction is one of the contributions of this book. The overview also includes a description of the common methodology used in the country studies, a discussion of data and measurement issues, and a synthesis of the findings.
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Overview: Structural change, fundamentals, and growthThe first decade of the 21st century was extraordinarily good for developing countries and their mostly poor citizens. Their economies expanded at unprecedented rates, resulting in both a large reduction in extreme poverty and a significant expansion of the middle class. In fact, their growth rates were an average 4 percentage points faster than those of the advanced countries—versus only 1.3 percentage points in the 1990s (Figure O.1a). This growth was led by the efforts of China, India, and a small number of other Asian countries, and assisted by the weaker economic performance of the rich countries. Latin America and Africa resumed growth as well, catching up with—and often surpassing—the growth rates they experienced during the 1950s and 1960s. As a result, the developing countries moved more quickly to close the income gap with the advanced countries (Figure O.1b), a process known as economic convergence. More recently, however, that process has slowed down—reflecting a narrowing of the advanced and developing country growth rate differentials since 2010—making it unlikely that poorer countries will be able to close the development gap with richer countries anytime soon.