Diversification, structural change, and economic development

Abstract

This study investigates how structural change that leads to increasing output variety was gradually perceived by economists and eventually incorporated into models of economic growth. We trace the evolution of growth models from exclusively macroeconomic models to those that include micro and meso levels of aggregation, and further, to those that permit explicit and endogenous representation of innovation and technological change. We consider the structure of an economic system as constituted by (i) a variable number of industrial sectors producing highly diversified goods and services, (ii) an increasing range of other activities, such as education or healthcare—which, while not being strictly economic, interact heavily with industrial sectors, and (iii) a series of interactions between these sectors and activities, the intensity of which can vary in the course of economic development. As a consequence, structural change consists of (i) the emergence of new sectors and activities and the reduction or extinction of older ones, (ii) increase in quality and differentiation of sectoral output, and (iii) the changing interactions between industrial sectors and other activities. In this paper, structural change is not considered an epiphenomenon of economic development but one of its fundamental mechanisms, since the emergence of new sectors and activities and their internal diversification contribute to overcoming the development bottleneck. This type of structural change gives rise to a growing diversification of the system through the co-evolution of industrial sectors, other activities, technologies, and institutions. This growing diversification of economic systems has recently been confirmed by an abundance of research, both theoretical and empirical: those studies are examined and analyzed in detail here.

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Notes

  1. 1.

    Without using the term “coevolution”, a similar view of the relationship between technologies and institutions had been described by Perez (1983)

  2. 2.

    There is no database that allows us to measure accurately the output variety of the economic system at the level of goods and services. However, it is increasingly difficult to find homogeneous output types. Most consumer goods and durables are increasingly diversified. Broad technological classes, such as transport or telecommunications have become increasingly diversified (Saviotti 1996). At the level of trade or technological classes, strong evidence of diversification can be found in Sect. 2.2.

  3. 3.

    Saviotti P.P., Qualitative change and economic development, pp 820-839 in Hanusch H., Pyka A., (Eds) Elgar Companion to Neo-Schumpeterian Economics, Cheltenham, Edward Elgar (2007).

  4. 4.

    We called this transition ‘from necessities to imaginary worlds’ (Saviotti and Pyka 2013).

  5. 5.

    Other growth models, such as those of Jones (1995) explore the balance between exogenous and endogenous mechanisms, but preserve a macro to macro approach,

  6. 6.

    At this point, according to our previous discussion in Sect. 1.2 we should use the term efficiency rather than productivity but here we follow Pasinetti’s description.

  7. 7.

    For a survey of early evolutionary growth models see Kwasnicki (2007), Metcalfe (2007) and Windrum (2007).

  8. 8.

    The model developed by Saviotti and Pyka, in recent collaboration with Jun, is called TEVECON. A more complete description of it can be found at: https://www.researchgate.net/publication/292130135 TEVECON Description of Model, https://doi.org/10.13140/RG.2.1.1626.9841.

  9. 9.

    A large number of studies following the initial paper tended to confirm that existing local capabilities dictate which new activities are more likely to develop in regions (Berge and Weterings 2014; Boschma et al. 2015; Boschma et al. 2014; Boschma and Iammarino 2009; Boschma et al. 2013; Colombelli et al. 2014; Essleztbichler 2015; Feldman et al. 2015; Heimeriks and Balland 2015; Kogler et al. 2013; Neffke et al. 2011; Quatraro and Montresor 2015; Rigby 2015; Tanner 2014, 2016; Gao et al. 2017).

  10. 10.

    For other studies following a similar approach see Felipe et al. (2012); Freire (2017); Saracco et al. (2015); Tacchella et al. (2012)

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Acknowledgements

Bogang Jun wishes to acknowledge the support from Inha University.

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Correspondence to Pier-Paolo Saviotti.

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Submitted to JEEC for the special issue on Structural Change, Institutions and Economic Development.

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Saviotti, P., Pyka¤, A. & Jun, B. Diversification, structural change, and economic development. J Evol Econ (2020). https://doi.org/10.1007/s00191-020-00672-w

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Keywords

  • Structural change
  • Growth
  • Diversification
  • History of economics

JEL classifications

  • 015
  • 030