Structural Reforms and Labor Productivity Growth in Developing Countries: Intra or Inter-Reallocation Channel?

M. Konte*, W.A. Kouame, E.B. Mensah

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

This paper employs sectoral data to draw conclusions on how structural reforms-implemented during the period 1975-2005-affected differences in cross-country aggregate labor productivity growth in developing countries. Most important, it explores how the effects of reforms on productivity growth are distributed between the intrasectoral and intersectoral components of labor productivity growth. The findings indicate that most of the trade, product market, and financial sector reforms have increased productivity growth. Looking at the subcomponents of labor productivity growth, the results show that structural reforms work mainly through the intra-allocative efficiency channel but not through the interallocative efficiency channel. The intrasectoral component is the main driver of the impacts of reforms on productivity growth, with a contribution that ranges from 76 percent to 96 percent depending on the reform measure considered. The paper also examines the role of labor market regulations and finds that labor market rigidity/flexibility matters for how specific reforms induce reallocation of resources within and across sectors.
Original languageEnglish
Article numberlhac002
Pages (from-to)646-669
Number of pages24
JournalWorld Bank Economic Review
Volume36
Issue number3
Early online date22 Mar 2022
DOIs
Publication statusPublished - 10 Aug 2022

JEL classifications

  • e24 - "Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital"
  • j24 - "Human Capital; Skills; Occupational Choice; Labor Productivity"
  • l16 - "Industrial Organization and Macroeconomics: Industrial Structure and Structural Change; Industrial Price Indices"
  • o47 - "Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence"

Keywords

  • developing countries
  • productivity growth
  • structural change
  • structural reforms
  • AGGREGATE PRODUCTIVITY
  • TRADE LIBERALIZATION
  • FINANCIAL DEVELOPMENT
  • PANEL-DATA
  • ALLOCATION
  • COMPETITION
  • INNOVATION
  • INDUSTRY
  • MISALLOCATION
  • MARKETS

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