Structural transformation in developing monsoon economies

An integral part of economic development is the reallocation of the employment of resources and a change in the sectoral location of the means of income generation. The reallocation of resources and change in sources of income is structural transformation. Economic development theory has identified the forces at work in bringing about structural transformation as growth in factor productivity and the operation of Engel's law.

Empirical research on structural transformation in developing countries has been confined mostly to large cross section analysis. An exception is time-series analysis conducted on Japan's long-term economic development. Japan's experience has been suggested as having lessons for other monsoon economies.

The objective of this study was to identify and explain the patterns of structural transformation in the Philippines and Thailand, and to compare the sources of similarities and differences for the period 1961 to 1987. The Philippines was identified as a "land-constrained" economy and Thailand as a "land-abundant" economy.

Ordinary least squares regression was used to analyze the pattern of structural transformation in the Philippines and Thailand. This analysis focused on (1) the performance of the agricultural sector during economic development and (2) on expenditure patterns during economic development.

The productivity of on-farm resources was found to be explained by employment of off-farm inputs. There is a direct association between this productivity, the resource endowment (land/labor ratio), and the generation of an agricultural surplus beyond the needs of the agricultural population. Resource endowment determines the path for generation of an agricultural surplus. The Philippines generated agricultural surplus based on increased land productivity. The generation of agricultural surplus in Thailand was accomplished based on resource endowment and the associated increased labor productivity.

The path of agricultural surplus generation impacted the relationship between this generation and intersectoral labor mobilization. While resource endowment and the relative productivity of on-farm resources diverged between the countries, the direction, if not magnitude, of influence was consistent between countries.

The operation of Engel's law was confirmed, as was the positive effect of agricultural output on expenditures for nonagricultural products. Both of these effects were stronger in Thailand than the Philippines.