Large gaps in labor productivity between the traditional and modern parts of the economy are a fundamental reality of developing societies. In this paper, we document these gaps, and emphasize that labor flows from low-productivity activities to high productivity activities are a key driver of development. Our results show that since 1990 structural change has been growth reducing - with labor moving from low - to high-productivity sectors - in both Africa and Latin America, with the most striking changes taking place in Latin America. Our results also show that things seem to be turning around in Africa: after 2000, structural change contributed positively to Africa's overall productivity growth. For Africa, these results are encouraging. Moreover, the very low levels of productivity and industrialization across most of the continent indicate an enormous potential for growth through structural change.
McMillan, M.; Rodrik, D.; Verduzco-Gallo, I. Globalization, Structural Change, and Productivity Growth, with an Update on Africa. World Development (2014) 63: 11-32. [DOI: 10.1016/j.worlddev.2013.10.012]