Page - (000023) - in Disrupted Development and the Future of Inequality in the Age of Automation

2 ECONOMIC DEVELOPMENT AND STRUCTURAL TRANSFORMATION 13 as Chenery (1960, 1975, 1979), Hirschman (1958), Myrdal (1957a, 1957b, 1968), and Thirlwall (1982, 2011). What binds this group together is that growth dynamics are dependent on the activities being developed and the capital accumulation effects of manufacturing. Thus, issues such as technology, externalities, balance of payment sustainability, and convergence with advanced countries are a function of the size, strength, and depth of manufacturing.1 Many such as Rodrik (2016) argue that most services are (i) non-tradable, and (ii) not technologically dynamic, and that (iii) some sectors are tradable and dynamic, but they do not have the capacity to absorb labor. Similar shortcomings can be observed about the manufacturing sector. A significant share of manufac- turing is (i) non-traded (even though it is tradable), (ii) much of manu- facturing in developing countries is not technologically advanced (at least in relative terms to other modern sectors), and (iii) where some manu- facturing sectors are technologically dynamic, they may not create much employment, as some service sectors do. Empirically, McMillan and Rodrik (2011, p. 1), in taking sectoral and aggregate labor productivity data empirically, show that the transfer of labor and other inputs to higher productive activity is a driver of economic development, as Lewis hypothesized. They go on to note that structural transformation (ST) can in fact be growth-enhancing or growth-reduc- ing depending on the reallocation of labor. This is an important point and relates to the multiple modes of ST and direction between sectors, which may be regressive as well as progressive in the sense of productivity gains or losses. They show how structural change had been growth-enhancing in Asia because labor has transferred from low to higher productivity sec- tors. However, the converse is the case for sub-Saharan Africa and Latin America because labor has been transferred from higher to lower produc- tivity sectors and this has reduced growth rates.2 McMillan and Rodrik (2011) find that countries with a large share of exports in natural resources tend to experience growth-reducing structural transformation and, even if they have higher productivity, cannot absorb surplus labor from agriculture. In a similar vein, Gollin, Jedwab, and Vollrath (2016), too, argued that natural resource exports drive urbaniza- tion without structural transformation because natural resources generate considerable surplus which is spent on urban goods and services, and urban employment tends to be in non-traded services. McMillan and Rodrik (2011) also find that an undervalued (competitive) exchange rate, which operates effectively as a subsidy on industry and labor market characteristics