Structural Transformation: A Competitiveness-based View

by Christian Ketels

Overview — A critical challenge for many economies is how to accelerate structural change when market forces alone seem insufficient. This paper explores the relationship between two approaches. The Structural Transformation framework argues for identifying and supporting target sectors in line with ‘latent’ competitive advantages. The competitiveness framework emphasizes the need to systematically strengthen competitive advantages, with new sectors the outcome rather than the driver of competitiveness upgrading.

Author Abstract

Competitiveness research aims to enhance our understanding of the drivers of prosperity differences across locations and of policies that can sustainably raise a location’s prosperity level. The paper outlines key elements of the competitiveness framework and discusses how it relates to the idea of structural transformation. What emerges are significant similarities between the two approaches: They both take a granular and often sector-specific perspective on microeconomic structures and systems, moving beyond macroeconomic, economy-wide, or single-factor microeconomic explanations of prosperity and development. But the analysis also reveals meaningful differences between the two: Most fundamentally, the chapter argues, the competitiveness literature treats sectoral composition as a key but largely endogenous part of development, while structural economies conceptualizes it as a fundamental driver. Competitiveness policy is about leveraging existing clusters as a platform for upgrading microeconomic fundamentals, where structural policies aim to change the industrial composition of an economy more directly. While recent work has significantly narrowed the differences between the two approaches, the chapter points out where and how they still matter, especially for policy practice. Further dialogue between the approaches, the chapter concludes, could lead to actionable advice on more robust policies that drive both structural change and competitiveness upgrading.

Paper Information

  • Full Working Paper Text
  • Working Paper Publication Date: May 2017
  • HBS Working Paper Number: African Development Bank Group Working Paper, No. 258
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