Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/236438 
Year of Publication: 
2021
Series/Report no.: 
IZA Discussion Papers No. 14407
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
The movement of workers from the farm sector to a more productive nonfarm sector has failed to generate significant gains in labor productivity in recent decades in many developing countries. This paper offers a new perspective into the barriers to growth-enhancing structural transformation, combining structural modeling with enterprise census data from Ghana. We argue that subnational differences in the intersectoral productivity gap between the nonfarm informal and formal sectors constrain the productivity gain from structural transformation. In Ghana, intersectoral productivity gaps among the richer regions are on average three times larger than among the poorer regions. We model the disparity in regional intersectoral productivity gaps as reflecting the disparity in the regional misallocation of labor between the informal and formal sectors and identify misallocation as the output wedge between the informal and formal sectors. Simulations suggest that a more productive nonfarm informal sector reduces the disparity in regional intersectoral productivity gaps and, in turn, increases national productivity and the contribution of structural transformation to national productivity. For example, a 90-percent reduction in the disparity in regional intersectoral productivity gaps raises Ghana's national aggregate productivity by 11.9 percent and the contribution of structural transformation to productivity by 19.7 percent.
Subjects: 
structural transformation
misallocation of resources
labor productivity
nonfarm enterprises
subnational regions
informal and formal sectors
Ghana
JEL: 
D24
F15
F43
N10
O11
O14
O47
Document Type: 
Working Paper

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