However, even for these countries shifts of labour were not important in explaining aggregate labour productivity growth. The contribution of labour shifts in the period
1963 – 1993 was even slightly negative in both countries, though the impact varied during the different phases of development. Especially in the early period 1963 –
1973, labour shifts had large negative effects, both static and dynamic. Also in the period after 1973, structural change did not play an important role in determining
aggregate labour productivity growth, whether positively or negatively, with the exception of Taiwan in the most recent period 1987 – 1993.
6
The finding of negligible or even negative contributions of structural change to aggregate labour productivity growth in manufacturing is not typical only for the
developing countries studied here. Dollar and Wolff 1993 in Chapter 8 found similar results for the manufacturing sectors in Brazil, Hong Kong, Singapore and Thailand.
Within manufacturing, there is no structural bonus comparable to that involved in the shift from agriculture to industry. However, the analysis so far is incomplete. The
labour productivity measure of structural change as presented in this section is a partial measure, as it does not consider other inputs besides labour. In the next section
we consider shifts of labour and capital simultaneously.
5. Impact of structural change on total factor productivity growth
In this section we measure the impact of sectoral changes in both labour and capital shares on aggregate total factor productivity growth. Syrquin 1984 provides a good
discussion of the various accounting methods, building on the pioneering work of Massell 1961. In our discussion below, we draw heavily on Syrquin’s exposition.
Using a Cobb – Douglas production function with constant returns to scale and disembodied Hicks-neutral technical change, growth of output of sector i is given by
Y :
i
= 6
i
L :
i
+ 1 − 6
i
K :
i
+ A
:
i
3 where L
i
is labour input, K
i
is capital input, 6
i
is the labour share in value added and A
i
is the level of total factor productivity TFP in sector i. Using Eq. 3, aggregate output growth can be rewritten as the summation over all sectors in continuous time
Y : =
i
r
i
Y :
i
=
i
r
i
6
i
L :
i
+
i
r
i
1 − 6
i
K :
i
+
i
r
i
A :
i
4 where r
i
= Y
i i
Y
i
, the share of sector i in aggregate output.
7
Aggregate growth can also be calculated directly from aggregate variables
6
During this period an important restructuring of the manufacturing sector took place due to low-wage competition from other Asian countries. Labour was reallocated towards more productive and
more dynamic branches such as the metal and non-electrical machinery branches. This resulted in positive shift effects, accounting for 20 of aggregate labour productivity growth.
7
This is only true if aggregate output in constant prices is equal to the sum of branch output at constant prices. This is normally not the case if real aggregate output is calculated as current aggregate
output deflated by an aggregate price index. However, in this exercise we define real aggregate output as the sum of real branch output. Hence we exclude the effects of a shift of output towards higher valued
activities which would boost aggregate output growth Jorgenson et al., 1987.
Y : =6L:+1−6K:+A:
5 where Y =
i
Y
i
, L =
i
L
i
, K =
i
K
i
, 6 =
i
6
i
and A denoting TFP growth esti- mated directly at the aggregate level. Aggregate TFP growth relative to sectoral
TFP growth includes the extra output generated by a shift of factors to more productive uses. This extra output is not due to technical change within branches
and was termed inter-industry technical change by Massell 1961 to distinguish it from intra-industry technical change as measured by sectoral TFP growth rates.
8
The difference between aggregate TFP growth and output-weighted sectoral TFP growth is referred to as the total reallocation effect TRE and can be calculated as
follows using Eq. 4 and Eq. 5
TRE = A : −
i
r
i
A :
i
=
i
r
i
6
i
l :
i
+
i
r
i
1 − 6
i
k ;
i
6 where l
i
= L
i
L the sector share in aggregate labour, and k
i
= K
i
K the sector share in aggregate capital. The first part on the right hand side indicates the effects of
changes in labour shares on aggregate total factor productivity growth and the second part indicates the effects of changes in capital shares. Eq. 6 can be
rewritten to highlight that factor shifts only augment TFP growth in the case of disequilibrium:
TRE = 1
Y
i
L :
i
f
L
i
− f
L
+ 1
Y
i
K :
i
f
K
i
− f
K
7 where f
L
i
and f
K
i
are the marginal productivity of labour, respectively capital in sector i and f
L
and f
K
, the economy-wide averages. If labour and capital increases more in sectors with above average marginal productivity, the total reallocation
effect will be positive. In Table 2 we report the results of the TFP growth decomposition. For each
country the first column shows the annual growth rate of TFP in aggregate manufacturing according to Eq. 5. This is decomposed into the output-share
weighted TFP growth rates of the thirteen individual branches the intra-branch effect and the effect of reallocation of factor inputs across branches. The total
reallocation effect is estimated by Eq. 6. The results are given in the second and third column.
We find that for total factor productivity growth the structural-bonus hypothesis also has to be rejected, even more strongly than in the case of labour productivity.
This is because labour shifted towards branches with higher labour productivity levels and growth rates, based on higher capital – labour ratios. The TFP decompo-
sition corrects for this whereas the labour productivity decomposition in the previous section does not. In India, aggregate total factor productivity growth was
completely due to TFP increases in individual branches. In all sub-periods, realloca- tion of factor inputs never contributed \ 0.1 point to aggregate TFP growth. The
same is true for Indonesia, where factor reallocation even contributed negatively in most periods. Even in the latest period of trade liberalisation, reallocation had no
8
Massell does not make a distinction between TFP growth and disembodied technological change. We use his terminology here.
positive effect on aggregate TFP growth. During 1963 – 1993, annual TFP growth in Taiwan was on average 2.0 of which only 0.3 was due to shift effects. As for
labour productivity, the highest reallocation effect was found in the latest period. In South Korea, reallocation of labour and capital even contributed negatively over
the period 1963 – 1990.
The total reallocation effect is further decomposed into a labour- and a capital- shift effect according to Eq. 6. This is given in the fourth and fifth column of
Table 2 Decomposition of total factor productivity growth in aggregate manufacturing based on 13 branches
average growth rate
a
TFP growth TFP growth due to
Reallocation effect due to annual
Intra-branch Labour shifts
Total Capital shifts
effect reallocation
effect India, registered sector
0.5 −
0.1 0.0
0.0 1973–1982
0.6 0.1
2.8 0.1
2.9 1982–1987
0.0 3.5
0.0 0.1
3.5 1987–1993
0.0 0.0
2.0 2.0
0.0 0.0
1973–1993 Indonesia, medium and large scale sector
− 0.3
0.3 0.0
1975–1982 0.8
0.8 −
0.1 1982–1987
3.8 3.8
− 0.1
0.0 −
0.2 1987–1993
3.7 4.0
− 0.3
− 0.1
− 0.2
0.1 2.6
− 0.1
1975–1993 2.7
South Korea, firms with fi6e employees or more −
0.4 −
0.4 9.2
− 0.9
1963–1973 8.3
− 0.4
− 0.3
− 0.1
0.3 1973–1982
− 0.1
0.1 5.7
5.7 0.0
− 0.1
1982–1987 0.2
6.3 0.0
6.1 0.2
1987–1990 −
0.4 −
0.1 −
0.3 4.5
1963–1990 4.9
Taiwan, all firms 1963–1973
0.0 0.2
0.2 3.1
3.3 0.2
0.4 −
0.2 −
0.2 0.0
1973–1982 0.0
0.0 0.0
4.0 1982–1987
4.0 0.7
0.1 1987–1993
0.6 0.2
0.4 1963–1993
2.0 0.0
0.3 0.3
1.7
a
Decomposition of total factor productivity growth into part due to total factor productivity growth in branches intra-branch effect and shifts of factor inputs between branches shift effect using Eqs. 5
and 6. Figures may not add up due to rounding. Sources: see Table 1. Capital stocks have been estimated using the perpetual inventory method.
Investments for India from CSO, Annual Survey of Industries, annual issues; Indonesia from BPS, Statistik Industri, annual issues. Investments have been scaled up in proportion to revision of value
added; South Korea from Bank of Korea, National Accounts, various issues; Taiwan from DGBAS, National Income in Taiwan, 1994. See Timmer 2000 for more details.
Table 2. The results show that the total reallocation effects are mainly due to shifts in labour rather than in capital, but the effects are small in both cases. Concluding,
neither shifts of labour nor of capital provide an additional bonus to aggregate TFP growth in the manufacturing sector of the Asian countries.
6. Critical evaluation of the conventional shift-share analysis
