sectors and aggregate productivity changes that are the result of labor re-allocation between sectors with different productivity levels and trends (McMillan et al., 2014; de Vries et al., 2015).<sup>6</sup> We therefore rely on data from the Groningen Growth and Development Centre (GGDC) 10 Sector database (Timmer et al., 2015), with additional information on data and methodology provided in appendix B.2.

The more disaggregated GGDC data reveal that much of the increase in the service employment share since 1990 can be attributed to expanding market services. The strongest employment increase, especially after 2000, took place in the sector comprising wholesale and retail trade, hotels, and restaurants (‘wrt’, see Figure 4 and appendix Table A.1). Not only does this sector have the lowest labor productivity among the 10 sectors we analyze, but also when comparing this sector across 29 developing countries, as done in McMillan et al. (2014: Table 2), Ghana is the country with the lowest labor productivity within this sector. In our view, this suggests that highproductivity service sectors are not able to absorb most of the labor supply that is especially freed up by productivity increases in agriculture. This may be due to supply constraints (Ghana only ranks 120<sup>th</sup> in the Doing Business report) and/or because the freed-up labor supply does not have the skills to enter high-productivity services (Ghana ranks bottom in PISA scores) and hence end up in the insulated low-productivity sectors such as retail trade.<sup>7</sup> However, also highly productive service sectors such as transport or business services expanded employment.

To quantify the contribution of structural change to aggregate productivity growth, we use different methodologies to decompose the change in average labor productivity into different components, each with its own economic interpretation (McMillan et al. 2014; de Vries et al., 2015; McMillan et al. 2017; see appendix B2 for details on the methodology). In its basic form, the decomposition splits the change in aggregate labor productivity into a component that results from productivity growth within individual sectors (e.g., innovation) and changes that result from a shift of employers between sectors (e.g. from low-productivity to high-productivity sectors).

A key result of this exercise is that structural change cannot explain Ghana’s most recent growth performance. Figure 4 plots the employment changes of 10 different sectors between 1990 and 2010 on the horizontal axis against the productivity of those sectors (relative to overall productivity) on the vertical axis. The size of each dot represents the overall importance of the respective sector (in terms of employment). Figure 4 details the above-mentioned employment dynamics: agriculture saw a drastic decline in employment, which is usually a precondition for labor to flow into above-productivity sectors. However, the sectors with the highest employment increases were trade services (‘wrt’) and “other” sectors (‘oth’), both of which had the economy’s lowest productivity. On a positive note, sectors with productivity highly above average also expanded so that in total a positive but very small effect of structural change on aggregate labor productivity remained. This is indicated by the solid regression line pointing out that, on average, sectors that saw an employment increase were those that had a relatively higher productivity.

> 6 See Osei and Jedwab (2016) for another case study. The studies of de Vries (2015) and McMillan et al. (2014) also include Ghana in their sample. The latter mentions that it was one of the relatively few countries where structural change towards higher-productivity sectors was taking place. Our analysis reveals, however, that this aspect was of very limited magnitude.

> 7 For potential policies to promote growth-enhancing structural change, see Trenczek (2016).

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