Does the Capital Intensity of Structural Change Matter for Growth?

12/10/2004 |  Braude Jacob, Menashe Yigal
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Does the Capital Intensity of Structural Change Matter for Growth?
Jacob Braude and Yigal Menashe

Abstract

Ventura (1997) offers an explanation for the success of the Asian Tigers in sustaining exceptional growth rates over an extended period based on capital accumulation alone. He points to their ability as export-oriented economies to exploit the accumulated capital to reallocate from labor-intensive to capital-intensive sectors instead of raising the capital intensity within each sector. We test this argument using industry-level data on manufacturing in 33 countries over three decades. The evidence on the argument is mixed. We identify two stages in the evolution of the structural change in the Tigers. It was labor-intensive initially and became capital-intensive in the 1980s. Compared to other countries, the Tigers are exceptional in the extent of their shift from a labor-intensive to a capital-intensive structural change during the sample period. However, structural change in the 1980s accounted for only a negligible part of capital accumulation in manufacturing. When tested in growth regressions the capital-intensity of structural change does not have a significant positive effect on growth. The effect may actually be negative.

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