Effects of Sectoral Employment and Value-added Shares on Economic Structural Transformation in Sub-Saharan African (SSA) Countries: Using Panel Corrected Standard Error (PCSE)

Abstract

This study investigates the effects of sectoral employment, value-added share, and growth rate on the economic structural transformation (ST) of 18 SSA countries from 1990 to 2020. Total ST was calculated using shift-share analysis. The share of employment in agriculture and the share of non-manufacturing value added positively affect ST; whereas the share of employment in nonmanufacturing and services, the value added of manufacturing, agriculture, and the growth rate of services negatively affect ST. The growth rate of agriculture and manufacturing positively affects ST. The relationship of income and structural transformation appears to diverge from classical theory, exhibiting a negative linear relationship and a positive quadratic relationship between income per worker and ST. Agricultural transformation should be prioritized to ensure an increase in productivity. Results suggest that the positive employment
shift and the rise of low productivity service sector absorption through reskilling, and an absence of growth in manufacturing, should be addressed through policies to enhance value chains. Overreliance on output growth is not an adequate stimulus. The path-dependent nature of SSA's transformation, continued to focus on agriculture, poor manufacturing sector performance, and informal services proliferation, warrants country-specific and contextcontingent policies to have inclusive growth, departing from historical experience