Structural transformation in Southeast Asian countries and key drivers

Abstract

The International Food Policy Research Institute (IFPRI), established in 1975, provides researchbased policy solutions to sustainably reduce poverty and end hunger and malnutrition. IFPRI's strategic research aims to foster a climate-resilient and sustainable food supply; promote healthy diets and nutrition for all; build inclusive and efficient markets, trade systems, and food industries; transform agricultural and rural economies; and strengthen institutions and governance. Gender is integrated in all the Institute's work. Partnerships, communications, capacity strengthening, and data and knowledge management are essential components to translate IFPRI's research from action to impact. The Institute's regional and country programs play a critical role in responding to demand for food policy research and in delivering holistic support for country-led development. IFPRI collaborates with partners around the world. AUTHORS AbstractThis study's objective is to examine the factors that have driven structural transformation (ST) in the Southeast Asian (SEA) economies and the policies supporting the process. It sets the stage by evaluating the ST in each country, quantifying the contribution of "within sector" and "structural change" to overall productivity growth and estimating the turning points (TPs) to gauge the prospects of income convergence. Eight SEA countries, undergoing a steady rate of economic growth -Cambodia, Lao PDR, Myanmar, Viet Nam, Philippines, Malaysia, Indonesia, and Thailand (CLMVPMIT) are chosen for analysis. We find their progress on ST to be consistent with the theory and historical patterns experienced in several developed and developing countries.However, progress is diverse across these countries and lags behind developed countries, indicating that labor is not exiting agriculture as fast as agriculture's share of value added has been declining. The ST has decreased from 49 percent in Thailand to almost 3 percent each in Cambodia and Malaysia during 1991 to 2016. Further, the contribution of within change to productivity, which was pivotal during the 1990s in each country is rather subdued during the 2000s, thereby giving comparative primacy to structural change. A relatively higher-57 to 80 percent-contribution of structural change in Cambodia and Lao PDR, together with productivity growth, may be explained by increasing migration and trade in nonagriculture products. We also find that while Lao PDR, Thailand, and Indonesia have reached their TPs, other nations, especially the poorer ones such as Viet Nam, Myanmar, and Philippines are predicted to take at least a decade towards this goal.Empirical analysis suggests ST in CLMVPMIT is positively driven by agricultural productivity, terms of trade, and public investments in infrastructure, with little role for rural to urban migration and market integration. Large inter-sectoral productivity differentials across SEA countries, other than in Cambodia and Malaysia, necessitates to accelerate agricultural disproportionate share of the labor forc...

Developmental Integration and Industrialisation in Southern Africa

“…This significance of the manufacturing industry was further proven by the proliferation of industrial policies aimed at strengthening this sector across the developing regions in the post-independence era beginning in the 1950s (Noman & Stiglitz, 2017;UNECA, 2016). The transfer of labour from agriculture (which has lower labour productivity) to manufacturing (which has higher labour productivity) increases a country's overall productivity (Bianchi & Labory, 2019;Szirmai, 2012;Szirmai & Verspagen, 2015), which is how it became the driver of growth and development, most notably in the East Asian miracle cases (Bathla et al, 2019;Hauge, 2020;Hewitt et al, 1992;Rodrik, 2016b;Vanheukelom & Bertelsmann-Scot, 2016).…”

“…As further noted by Chandra (1992, p.17), it is well understood that manufacturing cannot replace or serve as an alternative to agricultural development, but rather it is encouraged to complement it. Processing agricultural products increases the income of a country, as the more the commodity is processed into products, the higher the value (Bathla et al, 2019;Fischer, 2015).…”

“…In their theorisation of development and industrialisation in the developing world, neo-structuralists emphasised that the international division of labour has ensured that developing countries are the producers of primary commodities, but the importers of manufactured goods from developed countries (Bathla et al, 2019;Fischer, 2015;Sai-Wing Ho, 2012). Thus, industrialisation in the developing countries will shift the international division of labour to be more favourable for developing countries.…”

“…The lack of structural transformation thus results in high growth rates that do not translate into higher employment or a significant reduction in poverty. Furthermore, the growth rates are volatile, because they are not based on sustainable growth (Bathla et al, 2019;Lin, 2011;Sai-Wing Ho, 2012). For instance, the literature suggests that, following independence, the growth performance of African countries was similar to that of other regions until the oil price shock in 1973 (Rodrik, 2009).…”

“…For example, Fauzel (2016) states: "For every Botswana, a diamond-rich and prosperous state, there is at least one Congo, a mineral-rich and failed state". It is also widely recognised by several scholars that to be successful, a structural transformation and industrialisation plan requires strong political commitment that will seek to align these objectives with public policies and substantial financial resources (Bathla et al, 2019;Cilliers, 2018;Haraguchi et al, 2019;Rodrik et al, 2016). Hillbom (2008), Sekwati (2011) and Moyo (2016) have all noted the need to distinguish between growth and development.…”