Graduate Program

Economics

Degree Name

Master of Arts (MA)

Semester of Degree Completion

Summer 2020

Thesis Director

Linda S. Ghent

Thesis Committee Member

Ali R. Moshtagh

Thesis Committee Member

Ahmed S. Abou-Zaid

Abstract

This paper examines whether productivity growth induced by intersectoral labor movement affects inequality and poverty. To address this question a nonparametric shift-share decomposition technique is employed to decompose productivity growth into the structural change component; the component of productivity growth that is induced by the intersectoral labor movement, and the technological change component; the component of productivity growth that is induced by capital or improvements in productive efficiency. The paper then examines the long-run impact of structural change-induced productivity growth on poverty and inequality for a sample of 28 countries, and with a focus on Sub-saharan Africa and Asia. The Theil index of industrial wage inequality and the Gini coefficient from the estimated household income inequality data from the University of Texas Inequality Project (UTIP) are used as measures of inequality, and the percentage change in household final consumption measures poverty. Parametric fixed effects estimation techniques are employed and I find that labor share in productivity growth reduces poverty and inequality for the full sample and the Asia and sub-Saharan Africa subsamples. The effects are however stronger for Asia than for sub-Saharan Africa. Nonparametric time-varying coefficient estimation techniques are also employed to determine if any nonlinearities exist in the relationship between the dependent and independent variables. The results confirm that structural change has nonlinear effects on poverty and inequality. The paper recommends that governments should encourage policies directed towards improving labor shares in productivity as a means to reduce poverty and inequality, especially for developing countries.

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