2 - A note on production structure and aggregate growth

Summary

Introduction

The initial hypothesis that led to this chapter concerns the effects on aggregate growth of differences among production sectors in the potential rise in their productivity (per worker, or per unit of total input). Assume production sector I, which, for a variety of reasons (e.g., lesser role of recent technological innovations or greater institutional resistance to them), is assigned an expected lower rise in productivity over the next decade than production sector II. Then, if two economies differ in the proportions of sectors I and II in their product and inputs, economy 1, with a larger proportion of sector I and lower proportion of sector II, would tend to show a lower rise per worker (or per unit of total input) than economy 2; and this, under usual conditions, would also mean a lower rate of increase in per capital product (i.e., aggregate growth) in economy.

The general statement above can be made more meaningful by referring to identifiable major production sectors – A, agriculture and related activities, and the rest, (I + S), or the sum of industry and services. We can also use the familiar ratios for the less developed (LDC) and developed (DC) market economies. The simple example presented in Table 2.1, using labor force as the only productive factor (our data on others are still quite scarce), and thus dealing with changes in product per worker, illustrates the initial hypothesis.