# **_1.7. Main Findings_**

The main finding of the paper is that Uganda’s economy underwent significant structural transformation in the 2000’s that raised the share of non‐traded services in aggregate employment by 7 percentage points and reduced the combined share of manufacturing and commercial farming and commercial fishing by that amount. This was a major episode of reallocation of labor away from the production of traded goods to non‐traded services. It also involved significant informalization of employment in as far as it shifted employment from SMEs and larger firms in manufacturing and commercial agriculture to microenterprises in retail trade and in the hotels and restaurants industry. The reallocation of labor from the production of tradables to that of non‐tradables in and of itself must have reduced aggregate labor productivity from what it would otherwise have been since data from the UBI show that the labor significantly more productive in the traded sector that labor in the non‐traded sector. The informalization of employment that accompanied the sectoral shift in employment must have also be an additional factor in holding down aggregate labor productivity lower than it would otherwise have been as it amounted to a shift in employment to micro enterprises away from larger firms in which labor was consistently far more productive per UBI data. Far from being productivity‐enhancing, the structural transformation that Uganda’s economy underwent in the 2000s thus appears to have been productivity reducing. In that sense it is unlikely to have enhanced the prospects of Uganda sustaining the GDP growth rates of that decade into the current decade and beyond.

However, UBI data show that aggregate labor productivity in Uganda in fact increased a great deal in the course of the transformation. In the first instance this reflected the fact that labor productivity was indeed growing across all sectors –including the traded vs. non‐traded divide and across the size distribution of firms within each industry. This meant that the transformation shifted labor across sectors within each of which labor productivity was growing albeit at a pace that was lower in the destination sectors –namely, micro enterprises in non‐traded activities‐ than in the sectors of origin – larger firms in the traded sector. This leads to the question of where the gains in aggregate labor productivity (that more than made up for the losses via reallocation) came from.

One potential source of the gains could be the firm life cycle effects associated with a third aspect of the observed structural transformation, namely, the reallocation of labor across the age distribution of business enterprises. For the very process that raised the relative employment share of the production of tradable in relatively large commercial farms and manufacturing establishments to micro retail businesses and services in the non‐traded sector was also one that reallocated labor across the age distribution of enterprises by raising the employment shares of established firms at the expense of younger firms and startups. Clearly this same process would be a source of gains in aggregate productivity only if established firms as the destinations of the reallocation also higher labor productivity than younger firms and startups. However, it turns out that labor productivity was consistently higher in established firms than in younger ones throughout the period and across all major sectors and industries.

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