In economics, economic transformation refers to the continuous process of (1) moving labour and other resources from lower- to higher-productivity sectors (
structural change
In economics, structural change is a shift or change in the basic ways a market or economy functions or operates.
Such change can be caused by such factors as economic development, global shifts in capital and labor, changes in resource availabil ...
) and (2) raising within-sector
productivity
Productivity is the efficiency of production of goods or services expressed by some measure. Measurements of productivity are often expressed as a ratio of an aggregate output to a single input or an aggregate input used in a production proces ...
growth. As such, economic transformation emphasises the movement from low- to high-productivity activities within and across all sectors (which can be tasks or activities that are combinations of agriculture, manufacturing and services). This movement of resources from lower- to higher-productivity activities is a key driver of economic development.
Within-sector productivity growth (also called ′sector transformation') entails the adoption of new technologies and management practices that increase the efficiency of production. It can come about as a result of the increased efficiency of existing firms or as a result of the reallocation of resources away from the least productive firms towards more productive firms.
Measures of economic transformation
Economic transformation can be measured through production/value-added measures and trade-based measures. Production-based measures include: (1) sector value added and employment data, to show productivity gaps between sectors; and (2) firm-level productivity measures, to examine average productivity levels of firms within one sector.
Trade-based measures include: (1) measures of
revealed comparative advantage The revealed comparative advantage is an index used in international economics for calculating the relative advantage or disadvantage of a certain country in a certain class of goods or services as evidenced by trade flows. It is based on the Ricar ...
to show the levels of specialisation of a country in certain exports; and (2) export diversification measures such as those produced by the
International Monetary Fund
The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster globa ...
.
[Kennan, J. and te Velde, D. (2015)]
''Sources and methods of data for economic transformation''
References
Further reading
Calabrese, L. and Tang, X. (2020
''Africa’s economic transformation: the role of Chinese investment''
McMillan, M., J. Page, D. Booth and D.W. te Velde (2017)
''Supporting Economic Transformation: An approach paper''
Worral, L. K. Vrolijk, C. Mason and N. Balchin (2015)
''Baseline on economic transformation: Review of the international, regional and domestic literature on economic transformation''
External links
Supporting Economic Transformation programme
{{Authority control
Economic development
Economic growth
Economic theories