Page - (000024) - in Disrupted Development and the Future of Inequality in the Age of Automation

14 L. SCHLOGL AND A. SUMNER (so labor can move across sectors and firms easily), leads to growth-enhanc- ing structural transformation. In a similar vein, Diao, McMillan, Rodrik, and Kennedy (2017) argue that the most recent growth accelerations in the developing world, unlike East Asia’s historical experience, have not been driven by industrialization but by within-sector productivity growth (in Latin America) and growth-increasing structural transformation, but this has been accompanied by negative labor productivity growth within nonagricultural sectors (in Ethiopia, Malawi, Senegal, and Tanzania). Others, such as Herrendorf et al. (2014), concur empirically with the argument that the sectoral composition of economic activity is key to understanding not only economic development but also regional income convergence, productivity trends, business cycles, and inequality in wages.3 2.2 economic development with structurAl trAnsformAtion: kAldor revisited The theoretical basis or model of economic development of the third school, as noted, is that associated with Nicholas Kaldor and Arthur Lewis. The special characteristics of manufacturing argument is pred- icated on the work of Kaldor (1967). Kaldor posited that economic development requires industrialization because increasing returns in the manufacturing sector mean faster growth of manufacturing output which is associated with faster economic growth. Kaldor’s arguments were because backward and forward input–output linkages are strong- est in manufacturing, and the scope for capital accumulation, techno- logical progress, economies of scale, and knowledge spillover are strong. Further, there is a strong causal relationship between manufacturing output growth and labor productivity because of a deepening division of labor, specialization, and learning-by-doing, and the scope for productiv- ity gains is large due to economies of scale. Kaldor (1978 [1966], 1967) outlined a set of empirical regulari- ties which came to be known as “Kaldor’s growth laws” that are framed around ST (see for discussion in particular Storm, 2015; Targetti, 2005).4 Kaldor (1967) sought to explain the economic development of Western Europe through the development of manufacturing which he argued was the engine of growth for every country at every stage of economic develop ment. He posited that: (i) Economic development requires indus- trialization because increasing returns in the manufacturing sector mean faster growth of manufacturing output which is associated with faster GDP