- b. Labor productivity in industry and services grows at the same rate as the sectors themselves. Hence, neither sector absorbs new workers, while the entire increase in the labor force remains in agriculture – its share in total employment increases. Agricultural GDP grows faster than the labor force, so labor productivity in the sector does rise slightly. This pattern is somewhat closer to the African experience.

- c. Labor productivity in industry and services grows at half the rate of increase in sectoral output. The agricultural labor force rises, but so does labor productivity in the sector. This scenario is half way between the extremes of paths ‘a’ and ‘b’.

Meanwhile, it is important to note that productivity growth in isolation is not a sufficient condition for improving living standards. It is vital to ensure that ‘surplus labor’ can relocate to more productive jobs elsewhere in the economy. This is because labor productivity growth has a dual character: while it is an important source of economic growth and dynamism, it can also have a labor-saving effect – thus potentially reducing employment demand (Martins and McKinley, 2011). Hence, productivity growth needs to be accompanied by employment growth.

There are a few studies exploring the sources of aggregate productivity by decomposing labor productivity growth. Some of them use the Groningen Growth and Development Center (GGDC) 10Sector Database, which contains disaggregated (real) value added and employment data for 29 countries – although none of them in Africa. Timmer and de Vries (2009) used part of the dataset to investigate structural transformation in Asia and Latin America, concluding that growth accelerations are mostly explained by within-sector productivity rather than labor reallocation (i.e. structural change). Moreover, they argued that productivity growth in market services is more important than productivity improvements in manufacturing.

McMillan and Rodrik (2011) complemented the full GGDC dataset with national sources for China, Turkey and nine African countries (including Ethiopia). Their main conclusion is that Africa and Latin America have experienced growth-reducing structural change since 1990 – which largely explains the difference between these regions’ productivity performance and that of Asia. This means that labor has moved to lower-productivity sectors, therefore dampening economic and productivity growth.<sup>5</sup> Kucera and Roncolato (2012) constructed a sample of 81 countries with data from the UN National Accounts and the ILO, as well as the GGDC. The authors find that within-sector productivity growth is more important than labor reallocation across all regions. Moreover, aggregate labor productivity growth in Asia has been driven by industry (e.g. China) as much as by services (e.g. India).

Despite the broad findings of these studies, there is significant heterogeneity across countries. For instance, McMillan and Rodrik (2011) observe that – despite the negative aggregate results for Africa – Ethiopia, Ghana and Malawi have experienced growth-enhancing structural change. Therefore, it is important to take into consideration specific country contexts, especially since African countries are seldom well-represented in the study samples.

> 5 However, a recent revision of the estimates for Sub-Saharan Africa does suggests a more positive picture for the period between 2000 and 2005 – see AfDB et al (2013).

6