Structural change, industrialization and poverty reduction:

With special reference to India

Aradhna Aggarwal

*

The basic premise of the study Different growth processes have different impacts on poverty

reduction Increasing focus on growth processes to analyse the

relationship between growth and poverty.

Revival of structural economics.

Key hypothesis: growth, with structural transformation ensures poverty reduction

Economic growth, structural transformation and poverty reduction relationship: A virtuous circle

Economic growth

Structural transform

ation

Decent employme

nt

Poverty reduction

Structural transformation: from low to higher productivity sectors

Primary Manufacturing Services

Prerequisites

Promotion of agricultural productivity Shift in the structure of GDP vs employment Mutually reinforcing relationship between poverty

reduction which also means equality in the process of process of growth

Examples of now developed countries and East Asia

Globalisation and the challenges

Globalisation and the weakening of the relationship

between structural change in GDP vs structural change in employment Possibilities of agricultural imports Changing technologies

Proliferation in services with stagnant or declining

manufacturing sector.

The Indian Experience

Policy regimes and growth strategies matter.

The growth-structural change-poverty relationship changed with policy regimes: state led ( protected) vs market led (globalised)

Every strategy has its own challenges based on the idiosyncratic attributes of the host country. These need to be identified and addressed

Policy regimes in India 1950-1980: State led protected regime 1950-1968 growth phase : Import substitution with heavy

industrialisation 1968-1980: Growth with redistribution and self reliance

1980 onwards Market led with increasing

liberalisation 1980-1990 Cautious reforms for growth with efficiency 1990-2005 : Export oriented regime accelerated reforms

for growth 2005 onwards: accelerated reforms with inclusive growth

Policy regimes, growth strategy and growth

Growth and structural change in value added: Industrial stagnation after the mid 1960s

Source: Own calculations based on Central Statistical Organisation, Ministry of Statistical Planning and Implementation, India database

Agriculture1950-511951-521952-531953-541954-551955-561956-571957-581958-591959-601960-611961-621962-631963-641964-651965-661966-671967-681968-691969-701970-711971-721972-731973-741974-751975-761976-771977-781978-791979-801980-811981-821982-831983-841984-851985-861986-871987-881988-891989-901990-911991-921992-93 1993-94 1994-95 1995-961996-971997-981998-991999-002000-012001-022002-032003-042004-052005-062006-072007-082008-092009-1051.87521145059599851.44758237259490151.6057408657097752.39112443718030251.73480458650689750.00694278990322149.885673644434148.22800646790088349.34279786891600147.80001655037573747.6461442825449146.25103103904734844.39196004053094743.24117974826523243.90046799351937840.53439136521720339.5551964009840842.01798756772328140.88454501218254240.85039185999779241.65902989814391340.46834229425243738.56029727780239.53783106256764838.48874684744382139.86063811655930137.09378065316939737.97957391220418136.82758615351706133.88552734756447635.69349607806024935.34751150683634.246728706318434.96663090217990134.16743556659314932.90537973058123131.41513740843518929.86091514152192931.34629260614670129.88599929070809929.5254970317076828.54073924869027928.88940387768921928.24464385955640127.79896731741272125.7303799473181226.1940343352117524.47239346489672924.38913774226826123.2738393913601722.31349159287270122.41688605644733920.13308788254881120.31781803432447119.0285536570632218.2682096087045217.3636592820381116.80141206958371915.7145125692220714.619772425792929Industry1950-511951-521952-531953-541954-551955-561956-571957-581958-591959-601960-611961-621962-631963-641964-651965-661966-671967-681968-691969-701970-711971-721972-731973-741974-751975-761976-771977-781978-791979-801980-811981-821982-831983-841984-851985-861986-871987-881988-891989-901990-911991-921992-93 1993-94 1994-95 1995-961996-971997-981998-991999-002000-012001-022002-032003-042004-052005-062006-072007-082008-092009-1016.1922827643064316.69350913513818916.22288857962486116.14759020845793116.76991259689918918.0696848750781118.56188202858011118.6059755461078118.4919588526770319.33468049505550820.0869518637676220.80460036961082121.76029911013182222.74446249646619122.56950015986939924.38465390281871925.0054836770492723.88870944305444924.40594592571714124.62321597523538923.62232591695838123.97252223377407924.92431999941868923.9856306012987824.0453574043530823.62187318875242125.35306647914406125.2437793970816625.57521590699603926.1254467419150225.65555171796993926.2339742495960125.8500057085983625.8552253780363825.88382854090604125.93879128474662126.2973664930497426.8143062606694926.55612263242187927.09878850813207127.62539472167620127.32900092520257826.77166893771472926.72507884833737927.42010597639390928.4428091463328228.02636589883283927.9487381554147727.2846129589563226.8725466477553527.31988720456391926.56645387301849927.3893600064450127.2021677499376427.92506010232910927.97592415500384228.63619882271816128.72210985601791928.08210144410497128.083470728076801Service1950-511951-521952-531953-541954-551955-561956-571957-581958-591959-601960-611961-621962-631963-641964-651965-661966-671967-681968-691969-701970-711971-721972-731973-741974-751975-761976-771977-781978-791979-801980-811981-821982-831983-841984-851985-861986-871987-881988-891989-901990-911991-921992-93 1993-94 1994-95 1995-961996-971997-981998-991999-002000-012001-022002-032003-042004-052005-062006-072007-082008-092009-1029.53725544372331129.63488999325171829.713726933064428.8104471805205928.93769650853171929.61507713870641129.3087788080570730.78188287730542129.7880209444557130.59654724715126130.1922030853873230.85286321926523131.92024211767662932.18592017115270231.63801307072787933.7572893838504734.45194226642924933.07162802984593233.70792829437065333.27997519689161333.259108325132834.13793894918008235.25386389204299334.81611518469600235.83556032947245735.06049385825517836.23304622630939835.37935433990860235.77274242771782338.56601042376517837.64699806634565237.49292059591687139.02593806910154238.25359524643312239.04104375625733840.3565712712109141.62453362846203242.75836145693070741.51101668351775242.58486407976341342.54539083231404143.9130349268039144.05047804503710344.7566959917497344.52321108973082945.69384190062876245.50625242655431247.52550770856664348.23856965283589949.85361396088440250.36662120256332351.01666007053412252.47755211100619752.48001421573785353.04638624060765353.75586623629160254.00014189524362354.47647807439832256.20338598667294157.2967568461303

Policy regime and patterns of growth in services : Acceleration in dynamic services post liberalisation

Source: Own calculations based on Central Statistical Organisation, Ministry of Statistical Planning and Implementation, India

trade, hotels & restaurants1950-511951-521952-531953-541954-551955-561956-571957-581958-591959-601960-611961-621962-631963-641964-651965-661966-671967-681968-691969-701970-711971-721972-731973-741974-751975-761976-771977-781978-791979-801980-811981-821982-831983-841984-851985-861986-871987-881988-891989-901990-911991-921992-93 1993-94 1994-95 1995-961996-971997-981998-991999-002000-012001-022002-032003-042004-052005-062006-072007-082008-092009-100.283967179781811020.2829336316778680.284015048887133030.286607705955370990.292815736242310.299562730962227020.306634295785714990.301817616535019980.3020167302948350.3058666158860790.315954190966651010.319068212531386010.3178415689240040.3220049495781640.326849867118881980.3199727151069050.317931359781599980.317421099803780030.316621506374053010.317149130252520010.318431857619804030.313131363548095010.305323324812674990.3082075573499930.309524503249157980.317381509326771010.313620903392743010.323807554783643980.3300095311560140.3124690431204960.314229039394390010.3157368038646220.312634603255338980.311008602412348010.3059138427200630.3073188978045660.302022510686565990.296399815957028020.295560368735326980.2929090348441260.293049007509025020.2815101847909860.282381795042851990.281445435649698980.293405472466846010.3059506854555370.307630578035785970.304061138514571010.302562377630185010.291902086884084980.291320444573977990.298840674554857020.298553023028129030.304114063442309010.302808301372256010.306224318768536010.308874764949620020.308047730359720.2950914971803460.28609479141624transport, storage & communication1950-511951-521952-531953-541954-551955-561956-571957-581958-591959-601960-611961-621962-631963-641964-651965-661966-671967-681968-691969-701970-711971-721972-731973-741974-751975-761976-771977-781978-791979-801980-811981-821982-831983-841984-851985-861986-871987-881988-891989-901990-911991-921992-93 1993-94 1994-95 1995-961996-971997-981998-991999-002000-012001-022002-032003-042004-052005-062006-072007-082008-092009-108.8855772748671499E-28.9800805116287699E-28.9291465591334898E-28.98797543499847E-29.0154505845441393E-29.1959521110540204E-29.5111993562320599E-29.7449908915634598E-20.1005709334294420.1016915800851650.102857499697016010.1043377732066810.106456420630110.1069007354727520.1061738084827520.1087482795445540.1088076982633320.1112684461550630.111861768242275010.112336786728330.1108389727172770.1103279962024430.114978946882287010.1159438457771880.1222244642378310.124135625638686010.127114799716956990.124216485586160.1244362663311520.1286375304906420.131214624787944990.1334913869548060.129843767560317010.128868064557482010.128383439345585990.1281933791623430.127047916316004010.127729759496176990.1246410680655060.1217657556793790.1215121528892780.1235391734114380.122467382102326990.121698055199860.1253718261060470.125432466906031990.125939280800193010.1239716409552820.1230129264931030.133233489924841990.138130542412581990.1375698796581610.143915998558813010.150978392946772010.1588682376150280.160637317558930990.164499174564860990.1683199035788350.169789238678316990.177357269720119financing, insurance, real estate & business services1950-511951-521952-531953-541954-551955-561956-571957-581958-591959-601960-611961-621962-631963-641964-651965-661966-671967-681968-691969-701970-711971-721972-731973-741974-751975-761976-771977-781978-791979-801980-811981-821982-831983-841984-851985-861986-871987-881988-891989-901990-911991-921992-93 1993-94 1994-95 1995-961996-971997-981998-991999-002000-012001-022002-032003-042004-052005-062006-072007-082008-092009-100.282419980166930980.2814018874331940.284347009214170.280393785769347980.2775769962403950.275077422448847970.267287866704856990.267336718413085980.264051033787022990.261183138608875990.252293463441095990.249755713679202990.244362086495009010.2377998451270390.231031328541432990.231532834609306990.228521455258084010.226139700392948010.2267726845403350.224599376683166010.222958052357910.226131766912284010.228166651544727010.226386227268848990.2167247743451170.217225815305981010.2240654117788910.223974942170320990.224791490786853010.222093585233255010.216361446410274990.222391919946610010.227370224072699990.2361674644211850.239223514714804990.243871080798813010.250541982785959020.252846761109654980.259492313248851030.267960430393699990.270573847711079010.286418997538930020.285746755280977980.295835324574044990.290374873176693030.285058297170410980.281497058517063030.288676164165155010.287388678309814020.281279296269123010.279048822375069010.2797362012931030.281743035262972010.275925478746980980.277349809665804030.281523461527029010.2915263461551440.295843014291329980.302081966393257020.29974067576547597community, social & personal services1950-511951-521952-531953-541954-551955-561956-571957-581958-591959-601960-611961-621962-631963-641964-651965-661966-671967-681968-691969-701970-711971-721972-731973-741974-751975-761976-771977-781978-791979-801980-811981-821982-831983-841984-851985-861986-871987-881988-891989-901990-911991-921992-93 1993-94 1994-95 1995-961996-971997-981998-991999-002000-012001-022002-032003-042004-052005-062006-072007-082008-092009-100.344757067302586980.345863675772650980.342346476307362980.3431187539252970.339452761671854010.3334003254783850.330965843947106990.333395756136259990.33336130248870.331258665419880030.328894845895236990.3268383005827290.331339923950878020.333294469822044030.335944995856932990.339746170739235020.344739486696984010.345170753648208980.344744040843336990.345914706335983980.347771117305008980.350408873337177020.351531076760310980.349462369603970980.351526258167894010.341257049728562020.335198885111409990.328001017459874980.320762711725980980.336799841155606020.338194889407391010.3283798892339620.330151405111643980.323955868608985010.326479203219545990.320616642234278990.320387590211470010.323023663437140010.320306249950315980.317364779082793980.314864991890618010.308531644258644990.309404067573843980.301021184576394980.2908478282504140.283558550468019980.284933082646956990.283291056364993020.287036017566898010.293585126921949990.291500190638372010.2838532444938790.275787943150085980.2689820648639380.260973651346911970.251614902145505030.235099714330374990.2277893517701150.233037297748080990.23680726309816499

Employment Patterns: Slowly changing

0

10

20

30

40

50

60

70

80

1972 1977-78 1983 1987-88 1993-94 1999-0 2004-05 2009-10

Agriculture

Industry

Service

Increasing employment in Baumolian stagnant sectors

0

10

20

30

40

50

60

70

80

0

2

4

6

8

10

12

14

1972‐ 1977‐ 1983 1987 1994 2000.00 2005.00 2010 2012

Mining & Quarrying

Manufacturing

Utilities

Construction

Trade, Hotelling etc.

Transport & Communication

Financing, Insurance, Real estate &Bus ServCommunity, social and persnalserv.Primary Sector

Share of structural change has been declining: Rodrik Methodology

1972-73 to 1977-

78

1977-78 to 1983-

84

1983 to1987-

88

1993-94 to 1999-

00

1999-00 to 2004-

05

2004-05 to 2009-

10

ROG-within effect 8.609 3.330 2.500 30.138 9.687 47.975

ROG-structural change

3.359 7.242 7.490 9.257 5.017 2.845

ROG-total productivity

11.967 10.571 9.990 39.394 14.704 50.819

Rodrik Share of structural change

28.065 68.504 74.974 23.497 34.120 5.598

Share of within effects

71.935 31.496 25.026 76.503 65.880 94.402

Decomposition analysis: quality of employment has not improved: Shapley decomposition

Year

Contribution of capital-labour ratio (%)

Contribution of changes in TFP (%)

Contribution of changes in Employment rate (%)

Contribution of changes in labour force (%)

Contributions of Inter-sectoral Shifts (%)

Total

1973-1983

95.01

-53.28

-1.13

8.25

51.15

100

1983-1994

186.96

-119.33

-0.09

0.10

32.37

100

1994-2005

56.61

11.35

-0.91

0.90

32.05

100

2005-2012

57.77

45.39

0.13

-19.20

15.92

100

Source: Author’s estimates based on NSS surveys

Quality of employment: Wage vs other forms of employment

Years

Self-employed

Regular/wage Salaried

Casual labour

1993-94

50.77

16.03

33.09

1999-00

55.98

16.13

27.88

2004-05

51.89

16.39

31.71

2009-10

53.22

16.76

30.03

Quality of employment: Informality

Poverty declined since the mid 1960s but the rate slowed down in the post 1990 high growth phase

0

10

20

30

40

50

60

70

1951

1953

1955

1958

1960

1962

1965

1967

1969

1971

1974

1983

1988

1990

1991

1994

1996

1998

2001

2002

2004

2006

RuralUrbanNational

-.011 2.995 -1.78 -2.817 .232 -2.12

Poverty rates are declining, inequalities increasing

Head count Poverty gap

Squared

Poverty Gap Gini coefficient

Year Rural Urban Total Rural Urban Total Rural Urban Total Rural Urban

1973-74 56.4 49 54.9 16.56 13.64 15.95 6.81 5.26 6.48 0.27 0.301

1983-84 45.7 40.8 44.5 12.32 10.61 11.96 4.78 4.07 4.61 0.3 0.33

1993-94 37.3

32.4 36 8.45 7.88 8.3 2.78 2.82 2.79 0.28 0.34

2009-10 33.8 20.9 29.8

2011-12# 25.7 13.7 21.9

Regression results

Urban poverty: Economic growth rate and

distributional packages

Rural poverty: Industrialisation

Concluding remark 1

The broader national development strategy and economic policies to implement it are critical in determining the incentives and constraints for economic actors and shaping economic outcomes.

Therefore the performance of a country in achieving growth, structural transformation and poverty reduction needs to be analysed within an overall context of these economic institutions.

Concluding remark 2

There is no simple or uniform recipe of success.

If policy makers choose the right strategy based on their own competitive and comparative advantages, envision successfully the challenges inherent in the national strategy adopted for growth, and design appropriate implementation policies to preempt them, they are more likely to succeed in achieving the objective of poverty reduction.

Concluding remark 3

Appropriate state interventions based on country specific attributes are critical for the process of structural transformation and poverty reduction.

THANK YOU

Structural change, industrialization and poverty reduction:�With special reference to India� �The basic premise of the studyEconomic growth, structural transformation and poverty reduction relationship: A virtuous circle Structural transformation: from low to higher productivity sectors PrerequisitesGlobalisation and the challengesThe Indian ExperiencePolicy regimes in IndiaPolicy regimes, growth strategy and growth�Growth and structural change in value added: Industrial stagnation after the mid 1960sPolicy regime and patterns of growth in services : Acceleration in dynamic services post liberalisationEmployment Patterns: Slowly changingIncreasing employment in Baumolian stagnant sectorsShare of structural change has been declining: Rodrik MethodologyDecomposition analysis: quality of employment has not improved: Shapley decomposition�����Quality of employment: Wage vs other forms of employmentQuality of employment: InformalityPoverty declined since the mid 1960s but the rate slowed down in the post 1990 high growth phasePoverty rates are declining, inequalities increasingRegression resultsConcluding remark 1 Concluding remark 2Concluding remark 3THANK YOU