The key productivity improvements took place within agriculture. Table 2 disaggregates Ghana’s pattern of structural change and productivity developments over the 1990-2010 period across the 10 sectors analyzed, using a modified decomposition formula suggested by Vries et al. (2015; see Appendix B2 for details). In the leftmost column we can observe that agriculture contributed more than half (1.4 of 2.4 percentage points) to productivity increases within sectors. The remaining within-sector productivity increases were essentially split between manufacturing (0.4 percent) and services (0.6 percent). Such productivity increases in agriculture are often seen as a precondition for industrialization and development. But growth-enhancing structural change can only take place if workers moving out from agriculture find higher-productivity job opportunities.

**-** **<u>Table 2: Disaggregated productivity development patterns (1990 2010)</u>**

|<br>Sector|||<br>Component due|<br>to:|
|---|---|---|---|---|
||Total||<br>Structu<br>|<br>ral change<br>|
|||Within|Static|Dynamic|
|**Agriculture**||**1.36**|**0.00**|**0.00**|
|**Industry**||**0.42**|**0.17**|**0.05**|
|Mining||0.05|0.02|0.01|
|Manufacturing||0.22|0.00|0.00|
|Public utilities||0.06|0.00|0.00|
|Construction||0.09|0.16|0.04|
|**Services**||**0.59**|**0.56**|**-0.20**|
|Market services||0.37|0.47|-0.17|
|Trade services||0.14|-0.01|-0.12|
|Transport services||0.27|0.16|0.07|
|Business services||-0.04|0.31|-0.12|
|Non-market services||0.22|0.06|-0.03|
|Government services||0.19|0.03|0.01|
|Other services||0.03|0.03|-0.04|
|**Total economy**|**2.93**|**2.38**|**0.70**|**-0.15**|

**Source:** Constructed from the Groningen Growth and Development Centre 10 Sector database (Timmer et al., 2015). **Note:** Productivity growth is defined as the compound annual growth rate in average labor productivity (%). See appendix B2 for details on decomposition methodology. Growth-enhancing structural change occurs when labor moves into those sectors whose - <u>productivity is above average in either productivity levels (static gains) or growth rates (dynamic gains).</u>

The service sector absorbed most of the labor moving out of agriculture. The fact that productivity _levels_ in the former are higher than in the latter contributed 0.56 percentage points to aggregate productivity growth, mostly driven by business and transportation services (table 2). Despite the relatively small increase in their employment shares, their productivity levels were quite above average (compare Figure 4). However, it seems that Ghana’s service sector struggled with absorbing additional labor at levels of marginal productivity similar to existing workers. This can be seen from the dynamic term in Table 2 that captures different productivity _trends_ rather than levels. Services’ negative contribution of -0.20 percentage points to aggregate productivity growth indicates that while the sector had higher productivity levels than sectors that freed up labor, its increase of productivity over the 1990-2010 period was smaller. Especially trade services, that absorbed most laborers, do not enjoy scale economies and are likely to experience a strongly declining marginal productivity of labor (partially because they are not tradeable from an international perspective). This is reflected in their strongly negative ‘dynamic’ term. In a sense, these sectors are ‘insulated’ as they cannot easily integrate into value chains or provide forward 9