Globalization, Structural Change, and Interregional Productivity Growth in the Emerging Countries
Structural change boosts labor productivity growth, but not consistently across regions.
We contribute to the debate on the structural change effects or labor reallocation effects on the regional disparity in productivity growth in India and the People’s Republic of China (PRC). We use secondary data at the state level in India and provinces in the PRC between 1993 and 2010. Using the generalized method of moment system estimator in a dynamic spatial panel data framework for the empirical analysis, we draw four results. First, the shift-share analysis suggests that the low-income regions have a higher structural change effect on labor productivity growth (LPG) than the high-income and middle-income regions. Second, structural change has played an important role in boosting LPG. Third, the neighborhood effects also contribute positively to LPG. Fourth, human capital, investment in fixed assets, and foreign direct investment have boosted LPG. Finally, we suggest that policy makers should consider the role of structural change effects along with the neighborhood relationship, human capital, physical investment, and foreign direct investment for designing policies to reduce disparities in productivity growth, and hence economic growth, which will in turn help to avoid the middle-income trap.
WORKING PAPER NO: 774
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