Structural Dynamics

Stylized Facts Persistence of large Inequalities in the world economy ▫Episodes of convergence associated with labor reallocation from low to high productivity sectors subject to IRS. ▫High concentration of technology, world finance and MNCs

Growth of Per capita GDP

Growth Comes in Spurts ▫Balloon dynamics vs. Structural dynamics ▫Balloon dynamics-sectoral composition changes are result of GDP/capita dynamics ▫Structural Dynamics—innovation-new sectors—structural changes

Frequency of Sustained Growth and Collapses

Development Cycle

Elastic Factor Supplies for dynamic sectors ▫FDI ▫Labor (Lewis Model) ▫Growth—interplay of labor mobility and IRS.

Path Dependence ▫Dismantling production structures have long term implications—IS and Dutch Disease ▫Macroeconomic shocks (debt Crisis)

Real Interest Rate Shock

Terms of Trade Shocks

Economic policy ▫Macro policy and structural reforms ▫High Inflation ▫Relative prices (real r and E) may hurt investment and LR growth ▫Trade policy—connection between liberalization and growth and exports growth murky.

Dynamics of Production Structures Dynamics of Production Structure arte at Root of economic growth: Innovations Networks, Linkages,…including Elastic Factor Supplies

In Industrial countries, innovations driven by super profits Developing countries super profits=0 Innovations thus entail spreading of technologies already established in Industrial Countries Transfer of sectors from the industrial world

Innovations require high investment Learning—Evolutionary theories of technical change ▫Technology is incompletely available and imperfectly tradable ▫Learning by doing ▫Private/Public Good attribute (third Italy)

Networks Demand effects; Keynesian Multiplier Supply Effects-Economies of Agglomeration and Specialization Provision of Essential Non-Tradables ▫Production od specialized inputs ▫Specialized financial services ▫Infrastructure

Elastic Factor Supplies (K and L) Essential for innovation and growth How can we increase K: ▫Existence of unemployed or underemployed recourses ▫Endogenous financing of capital through redistribution of income towards profits ▫Social organization that guarantees higher LF participation especially women ▫Interregional and International factor mobility ▫Technical change that breaks factor supplies constraints (land productivity, capital intensive)

L? Dual Structure International labor migration The dynamism generated by innovative activities lead to Kaldorian growth productivity links

Interplay of innovations, networks and elastic labor supplies Innovation + strong networks----absorption of increasing number of workers into dynamic activities Alternatively, destructive forces---slowdown in productivity, decline in I, increased dualism as surplus labor absorbed into low productive activities and a loss of production experience that widens the technology gap with industrialized countries.

Complem entarities StrongWeak Learning process StrongDeep Short Breath WeakLabor Absorbin g (labor- intensive exports) Shallow (export enclaves)