Growth and structural changes in transition countries: the chicken or the egg?
Abstract
The objective of this study is to test empirically the relationship between structural changes (changes in gross value added and employment) and economic growth. We used a panel Granger-causality analysis based on annual data for eight transition countries, covering the period 1995–2011. The main finding is that the causality relations analysed are heterogeneous processes and are identified more often when we measure structural changes by value added than by changes in employment. Among the countries analysed, we separate a subgroup of economies with very strong bilateral causality (small countries such as Latvia, Lithuania, and Estonia), a subgroup in which no causal relationships are observed (e.g., Hungary in the case of employment), and a group with a one-directional relationship (e.g., Poland, where GDP changes cause employment changes, but not vice versa). The research results point to the necessity of taking into account different relationships, whether one- or two-directional, between growth and structural changes in government economic policy. The paper presents a verifiable methodology, which was originally used to identify the analysed relationship in transition countries.
Keyword : CEE countries, economic growth, Granger causality, industries, panel data, structural changes
How to Cite
Olczyk, M., & Kordalska, A. (2018). Growth and structural changes in transition countries: the chicken or the egg?. Journal of Business Economics and Management, 19(3), 544-565. https://doi.org/10.3846/jbem.2018.6580
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Ball, L., Jalles, J. T., & Loungani, P. (2015). Do forecasters believe in Okun’s Law? An assessment of unemployment and output forecasts. International Journal of Forecasting, 31(1), 176-184. https://doi.org/10.1016/j.ijforecast.2014.03.009
Baltagi, B. H. (2008). Econometric analysis of panel data. Chichester: Wiley.
Baumol, W. J. (1967). Macroeconomics of unbalanced growth: the anatomy of urban crisis. American Economic Review, 57(3), 415-426.
Baumol, W. J., Blackman, S. A. B., & Wolff, E. N. (1985). Unbalanced growth revisited: asymptotic stagnancy and new evidence. American Economic Review, 75(4), 806-817.
Beck, N., & Katz, J. (2009). Modeling dynamics in time-series–cross-section political economy data. Annual Review of Political Science, 14, 331-352. https://doi.org/10.1146/annurev-polisci-071510-103222
Białowąs, T. (2016). Zmiany strukturalne a wzrost gospodarczy krajów Europy Środkowej. Rocznik Instytutu Europy Środkowo-Wschodniej, 14(5), 121-139 (in Polish).
Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115-143. https://doi.org/10.1016/S0304-4076(98)00009-8
Breitung, J. (2001). The local power of some unit root tests for panel data. In B. H. Baltagi, T. B. Fomby, & R. C. Hill (Eds.), Nonstationary panels, panel cointegration, and dynamic panels advances in econometrics (pp. 161-177). Emerald Group Publishing Limited.
Bruno, G. S. F. (2005). Estimation and inference in dynamic unbalanced panel-data models with a small number of individuals. Stata Journal, 5(4), 473-500.
Caselli, F., & Coleman, W. J. (2001). Cross-country technology diffusion: the case of computers. American Economic Review, 91(2), 328-335. https://doi.org/10.1257/aer.91.2.328
Chamberlain, G. (1984). Panel data. In Z. Griliches & M. D. Intriligator (Eds.), Handbook of Econometrics, 2, 1247-1318.
Chenery, H. (1960). Patterns of industrial growth. American Economic Review, 50(4), 624-654.
Chenery, H. B., Robinson, S., & Syrquin, M. (1986). Industrialization and growth: a comparative study. Washington DC: World Bank.
Choe, J. I. (2003). Do foreign direct investment and gross domestic investment promote economic growth? Review of Development Economics, 7(1), 44-57. https://doi.org/10.1111/1467-9361.00174
Clark, C. (1940). The conditions of economic progress. London: Macmillan.
Cortuk, O., & Singh, N. (2010). Structural change and growth in India. Working Papers, UC Santa Cruz Economics Department 663.
Dietrich, A. (2012). Does growth cause structural change, or is it the other way around? A dynamic panel data analysis for seven OECD countries. Empirical Economics, 43(3), 915-944. https://doi.org/10.1007/s00181-011-0510-z
Dumitrescu, E., & Hurlin, C. (2012). Testing for Granger non-causality in heterogeneous panels. Economic Modelling, 29(4), 1450-1460. https://doi.org/10.1016/j.econmod.2012.02.014
Echevarria, C. (1997). Changes in sectoral composition associated with economic growth. International Economic Review, 38(2), 431-452. https://doi.org/10.2307/2527382
Eichengreen, B., Park, D., & Shin, K. (2012). When fast-growing economies slow down: international evidence and implications for China. Asian Economic Papers, 11(1), 42-87. https://doi.org/10.1162/ASEP_a_00118
Erdil, E., & Yetkiner, I. H. (2009). The Granger-causality between health care expenditure and output: a panel data approach. Applied Economics, 41(4), 511-518. https://doi.org/10.1080/00036840601019083
Felipe, J., Kumar, U., & Abdon, A. (2012). How rich countries became rich and why poor countries remain poor: it’s the economic structure… duh! Working Paper No. 644. Annandale-on-Hudson, NY: Levy Economics Institute of Bard College.
Fisher, A. G. B. (1939). Production: primary, secondary and tertiary. Economic Record, 15(1), 24-38. https://doi.org/10.1111/j.1475-4932.1939.tb01015.x
Fourastié, J. (1949). Le grand espoir du XXe siècle. Progrès technique, progrès économique, progrès social. Paris: Presses Universitaires de France.
Granger, C. W. J. (1969). Investigating causal relations by econometric models and cross-spectral methods. Econometrica, 37(3), 424-438. https://doi.org/10.2307/1912791
Grossmann, G., & Helpman, H. (1991). Innovation and growth in the global economy. Cambridge: MIT Press.
Havlik, P. (2013). Structural change and economic growth in the new EU member states. GRINCOH Working Paper P1.4. Vienna Institute for International Economic Studies.
Holtz-Eakin, D., Newey, W., & Rosen, H. (1985). Implementing causality tests with panel data, with an example from local public finance. NBER Technical Working Papers, No. 0048.
Hsiao, C. (1989). Modelling Ontario regional electricity system demand using a mixed fixed and random coefficients approach. Regional Science and Urban Economics, 19(4), 565-587. https://doi.org/10.1016/0166-0462(89)90020-3
Hurlin, C., & Venet, B. (2001). Granger causality tests in panel data models with fixed coefficients. EURIs-CO Université Paris Dauphine.
Hurlin, C. (2004). Testing Granger causality in heterogeneous panel data models with fixed coefficients. University Orléans.
Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115(1), 53-74. https://doi.org/10.1016/S0304-4076(03)00092-7
Ishikawa, S. (1987). Structural change. In J. Eatwell, M. Milgate, & P. Newman (Eds.), The new Palgrave: A dictionary of economics, 4, 523-525. https://doi.org/10.1057/978-1-349-95121-5_1775-1
Islam, N. (2001). Small sample performance of dynamic panel data estimators in estimating the growth-convergence equation: a Monte Carlo study. In B. H. Baltagi, T. B. Fomby, & R. Carter Hill (Eds.), Nonstationary panels, panel cointegration, and dynamic panels (pp. 317-339). Emerald Group Publishing Limited.
Kiviet, J. F. (1995). On bias, inconsistency, and efficiency of various estimators in dynamic panel data models. Journal of Econometrics, 68(1), 53-78. https://doi.org/10.1016/0304-4076(94)01643-E
Kiviet, J. F. (1999). Expectation of expansions for estimators in a dynamic panel data model; some results for weakly exogenous regressors. In C. Hsiao, K. Lahiri, L.-F. Lee, & M. H. Pesaran (Eds.), Analysis of panel data and limited dependent variables (pp. 199-225). Cambridge: Cambridge University Press. https://doi.org/10.1017/CBO9780511493140.010
Kongsamut, P., Rebelo, S., & Xie, D. (2001). Beyond balanced growth. Review of Economic Studies, 68(4), 869-882. https://doi.org/10.1111/1467-937X.00193
Kuznets, S. (1959). On comparative study of economic structure and growth of nations. In R. W. Goldsmith (Ed.), The comparative study of economic growth and structure (pp. 162-176). National Bureau of Economic Research.
Laitner, J. (2000). Structural change and economic growth. Review of Economic Studies, 67(3), 545-561. https://doi.org/10.1111/1467-937X.00143
Lilien, D. M. (1982). Sectoral shifts and cyclical unemployment. Journal of Political Economy, 90(4), 777-793. https://doi.org/10.1086/261088
Lucas, R. (1988). On the mechanics of economic development. Journal of Monetary Economics, 22(1), 3-42. https://doi.org/10.1016/0304-3932(88)90168-7
Machlup, F. (1967). Essays in economic semantics. New York: W.W. Norton.
Mahmood, T., & Linden, M. (2017). Structural change and economic growth in Schengen region. International Journal of Economics and Financial Issues, 7(1), 303-311.
Matsuyama, K. (2008). Structural change. In S. N. Durlauf, & L. E. Blume (Eds.), The new Palgrave dictionary of economics (2nd ed.) (pp. 136-153). London: Palgrave Macmillan. https://doi.org/10.1057/978-1-349-95121-5_1775-2
Moon, H. R., & Perron, B. (2004). Testing for a unit root in panels with dynamic factors. Journal of Econometrics, 122(1), 81-126. https://doi.org/10.1016/j.jeconom.2003.10.020
Nair-Reichert, U., & Weinhold, D. (2001). Causality tests for cross-country panels: a new look at FDI and economic growth in developing countries. Oxford Bulletin of Economics and Statistics, 63(2), 153-171. https://doi.org/10.1111/1468-0084.00214
Ngai, L. R., & Pissarides, C. A. (2007). Structural change in a multisector model of growth. American Economic Review, 97(1), 429-443. https://doi.org/10.1257/aer.97.1.429
Nickell, S. (1981). Biases in dynamic models with fixed effects. Econometrica, 49(6), 1417-1426. https://doi.org/10.2307/1911408
Nurkse, R. (1953). Problems of capital formation in underdeveloped countries. Oxford: Basil Blackwell.
OECD. (2016). Promoting productivity and equality: a twin challenge. OECD Economic Outlook, 2016(1), 59-84. Retrieved from http://www.oecd-ilibrary.org/economics/oecd-economic-outlook-volume-2016-issue-1/promoting-productivity-and-equality-a-twin-challenge_eco_outlook-v2016-1-3-en/
Ohno, K. (2009). Avoiding the middle income trap: renovating industrial policy formulation in Vietnam. ASEAN Economic Bulletin, 26(1), 25-43. https://doi.org/10.1355/AE26-1C
Pasinetti, L. L. (1981). Structural change and economic growth: a theoretical essay on the dynamics of the wealth of nations. Cambridge: Cambridge University Press.
Pesaran, H. (2003). A simple panel unit root test in the presence of cross section dependence. Cambridge Working Papers in Economics 0346, Faculty of Economics, University of Cambridge. https://doi.org/10.2139/ssrn.457280
Pissarides, C. (1990). Equilibrium unemployment theory. Oxford: Basil Blackwell.
Raffinot, M., & Venet, B. (2017). Low income countries, credit rationing and debt relief: bye bye international financial market? Retrieved from https://hal.archives-ouvertes.fr/hal-01489954/
Romer, P. M. (1990). Endogenous technical changes. Journal of Political Economy, 98(5), 71-102. https://doi.org/10.1086/261725
Rosenstein-Rodan, P. N. (1943). Problems of industrialization of Eastern and South-Eastern Europe. Economic Journal, 53(210), 202-211. https://doi.org/10.2307/2226317
Schumpeter, J. (1934). Theory of economic development. Cambridge: Harvard University Press.
Semmler, W., Madrick, J., & Khemraj, T. (2006). Okun’s law and jobless growth. New York: Schwartz Center for Economic Policy Analysis. https://doi.org/10.13140/rg.2.1.4719.7522
Silva, E. G., & Teixeira, A. C. (2008). Surveying structural change: seminal contributions and a bibliometric account. Structural Change and Economic Dynamics, 19(4), 273-300. https://doi.org/10.1016/j.strueco.2008.02.001
Solow, R. M. (1956). A contribution to the theory of economic growth. Quarterly Journal of Economics, 70(1), 65-94.
https://doi.org/10.2307/1884513
Solow, R. M. (1957). Technical change and the aggregate production function. Review of Economics and Statistics, 39(3), 312-320.
Soylu, Ö. B., Çakmak, I., & Okur, F. (2018). Economic growth and unemployment issue: Panel data analysis in Eastern European Countries. Journal of International Studies, 11(1), 93-107. https://doi.org/10.14254/2071-8330.2018/11-1/7
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