Structural Transformation, Productivity Growth, and Sustainable Development in Emerging Economies

Abstract

Structural transformation—the reallocation of economic activity across agriculture, manufacturing, and services—remains central to productivity growth and sustainable development in emerging economies. This study examines structural transformation, productivity growth, and development outcomes in 42 emerging economies over the period 1990–2020 using panel data methods, including system GMM and instrumental variable estimation. The results show that the productivity contribution of structural transformation has weakened substantially over time, declining from 0.58 percentage points annually in the 1990s to only 0.06 percentage points in the 2010s. Sectoral analysis reveals that manufacturing continues to play a distinctive developmental role: a one percentage point increase in manufacturing employment is associated with 1.5–1.8 percentage points higher annual productivity growth, whereas comparable service-sector shifts do not generate similar effects. The study also finds widespread premature deindustrialization, particularly in Africa and Latin America, where large manufacturing employment gaps are linked to weaker productivity performance. Beyond productivity, manufacturing expansion is associated with lower poverty, higher formal employment, and reduced income inequality, although it also increases carbon intensity. These findings suggest that manufacturing-led structural transformation remains important for inclusive growth, but its future contribution depends on policy adaptation. Emerging economies need industrial strategies that rebuild productive capacity, address premature deindustrialization, expand formal employment, and integrate environmental sustainability. The study concludes that sustainable development in emerging economies requires a renewed transformation agenda that combines manufacturing dynamism with low-carbon technologies, institutional support, and inclusive industrial policy.

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