Structural Change and Its Implications on Productivity Growth in Sub Saharan Countries

Abstract

Structural changes indicate the reallocation of inputs from less productive to more productive sectors. The main purpose of this study is to examine the determinants of structural change and its effect on productivity growth in SSA based on 17 sample countries. The data sources used in the study were the Groningen Growth and Development Center database, the WDI database, and the UNDP data center. The study uses output and employment by applying shift-share decomposition analysis to compute structural change. The Generalized Methods of Moments (GMM) approach examines determinants of structural change to estimate the effect of structural change on productivity growth. We found that a country's initial conditions of agricultural employment, access to domestic credit, trade openness, GDP growth, and the mean year of schooling positively influence the pace of structural change, but inflation has a negative effect. The study's findings indicate the existence of growth-promoting structural change in the SSA area, indicating that structural change has a beneficial impact on overall productivity growth; services were the dominant engine of economic growth and the leading catalyst for structural change in terms of sectoral dynamics. Even though structural change can promote growth in the SSA region, there is a tendency to decrease employment productivity growth in expanding industries. In addition, the study reveals that in certain industry subsectors, the percentage of total employment and productivity in the region is falling. For these, productivity levels might rise and development could increase if measures are targeted to improve this sector's access to financing, machinery, and equipment.