Decomposing a decomposition: Within-country differences and the role of structural change in productivity growth

Octavio Escobar and Henning Mühlen

No 05-2019, Hohenheim Discussion Papers in Business, Economics and Social Sciences from University of Hohenheim, Faculty of Business, Economics and Social Sciences

Abstract: In this article, we investigate the relevance of structural change in country-wide productivity growth considering within-country differences. For this purpose, we propose a two-step decomposition approach that accounts for differences among subnational units. To highlight the relevance of our procedure compared to the prevalent approach in the existing development literature (which usually neglects subnational differences), we show an application with data for the Mexican economy. Specifically, we contrast findings obtained from country-sector data on the one hand with those obtained from (more disaggregated) state-sector data on the other hand. One main insight is that the qualitative and quantitative results differ substantially between the two approaches. Our procedure reveals that structural change appeared to be growth-reducing during the period from 2005 to 2016. We show that this negative effect is driven mainly by the reallocation of (low-skilled) labor within subnational units.

Keywords: decomposition approach; economic development; labor reallocation; regional differences; structural change (search for similar items in EconPapers)
JEL-codes: L16 O10 O18 R11 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-eff, nep-geo, nep-gro and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:hohdps:052019

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