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.