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Pathfinding Paper

Structural Transformation, Input-Output Networks, and Productivity Growth

Akos Valentinyi

The income differences between rich and poor countries are enormous. Development accounting breaks down these differences into differences in aggregate factor inputs and into aggregate TFP. Sectoral development accounting also reveals how these factor inputs are allocated across sectors and the contribution of sector TFPs to aggregate TFP. Most of these analyses are based on the use of value-added production functions, which assume away cross-sectoral input-output relationships. However, most recent theoretical and empirical research revealed that input-output relationships matter for aggregate TFP and output. This paper reviews the existing literature, its key findings, and discusses their relevance for structural transformation, industrialisation in developing countries, and potential avenues for further research.

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