Why has this change occurred? Many factors converge, among which growing empirical evidence that the “production structure matters”. A simple exercise may illustrate this point.
An Italian economist of the Renaissance — Serra, quoted by Reinert (2014) — deduced the wealth of the Italian cities from the number and type of occupations they had. In modern language, the wealth of a country depends on the diversification and sophistication of its production structure and on the capabilities that sustain such a structure. The higher the diversification and knowledge intensity of the production structure, the higher the productivity and competitiveness.
In other words, structural change and productivity change co-evolve: certain sectors and activities are more conducive to technical change, productivity growth and demand growth than others.
Nowadays, the complexity of an economy (its diversification and knowledge intensity) cannot be estimated by simply counting the number of occupations, as in Serra’s time. More sophisticated indicators are required; the graph below presents the Augmented Complexity Index suggested in Cabello et al (2013). The ACI combines data on the sophistication of the export structure (high and medium technology exports) and the sophistication of the production structure (share of the engineering industries in manufacturing value added), along with patents and expenditures in R&D.
The famous statement by Plato — “to learn is to recollect” — seems to be more valid in economics than in any other science. Hopefully, renewed awareness on the importance of structural change would give a more significant place to industrial policy on the policy agendas of countries in Latin America in the coming years.
- Cabello, L. et al (2013) “Productivity and Income Distribution in Latin America”, Working paper, Division of Production, Productivity and Management, ECLAC.
- Reinert, E. (2014) “The Other canon: The History of Renaissence Economics”, The Other Canon and Tallinn University Working Papers in Technology Governance and Economic Dynamics.
- Taccella, A. et al (2013) “Economic Complexity: Conceptual Grounded and of a New Metrics for Global Competitiveness”, Journal of Economic Dynamics and Control, 37 (1683-1691).