"Across" and "within" sectors growth challenges

Dani Rodrik's latest co-authored book examines the development of seven countries in the 1990-2010 period using a framework that distinguishes between "structural transformation" and "fundamentals" challenges in growth. The seven countries are Brazil, India, Vietnam, Botswana, Ghana, Nigeria, and Zambia. See their paper here. 

The authors define "structural transformation" challenge as about ensuring resources flow to more productive modern economic activities like manufacturing and services away from traditional activities like agriculture, and "fundamentals" challenge as about accumulating the skills and broad institutional capabilities needed to generate sustained productivity growth, not just in the modern sector but across the entire economy including nontradeable activities. The former is an "across" sector change, whereas the latter is a "within" sector change. Evidently, successful development is about being able to achieve both changes simultaneously as was achieved by the likes of Hong Kong, Taiwan and South Korea.

Their assessment of the seven countries,

• Botswana has high fundamentals, but has experienced limited growth from structural change in recent years. While growth in Viet Nam has benefitted from relatively rapid structural change although fundamentals remain relatively low.

• Ghana, Nigeria, and Zambia have had growth-promoting structural change, but vacillate between episodic growth and slow growth.

• Brazil has moved from episodic growth to slow growth, reflecting greatly improved fundamentals but slow structural change.

• India has not experienced the kind of structural change that successful import-substituting countries or the East Asian exporters have gone through, so its growth prospects remain limited.

The conclusion is sobering,

The problem—and thus a reason for tempering our expectations—is that structural transformation can lead to rapid and relatively quick growth by moving labor into more productive sectors, while the growth payoffs to investments in fundamentals like human capital and institutions are likely to take longer. The bottom line is that future East Asia-style “economic miracles” are unlikely. Instead, development will have to happen the hard way.

That is the essence of my own work with Ananthanageswaran on India's growth prospects here.