The impact of intersectoral labour reallocation on economic growth

This paper explains economic growth differences in an aggregateproduction function framework, where labor reallocation fromagriculture to modern sectors influences labor efficiency growth.The econometric analysis uses a panel of 65 developing and industrialcountries over 1960-90. The results highlight: (i) differencesin the impact of labor reallocation on growth, resulting fromvariations in the intersectoral wedge in labor productivities;(ii) the significance of labor reallocation effects, even aftercontrolling for capital accumulation, initial conditions andcountry effects, and adjusting for endogeneity; (iii) theirrole in explaining slow productivity growth in Africa; and (iv)the role of initial conditions and capital accumulation in explainingdifferences in labor reallocation rates.