In developed countries, the share of services and industrial sector has increased in the past few decades and at the same time the share of agriculture sector went down considerably. In the literature, there exists a debate about structural change in the developed countries. Neoclassical economists believe that structural change is an unimportant side effect of the economic development. On the contrary, economists associated with the World Bank and some others posit that growth is brought about by the changes in sectoral composition. The objective of this study is to empirically test the relationship between sectoral shares and economic growth by using the panel data for 20 developed countries. The results of the granger causality suggest that both services and agriculture sectors do granger cause economic growth, whereas industrial sector does not granger cause growth. Reverse causality does not hold for any of the three sectors. The results of Barro and Non-Barro regressions along with the set of control variables have suggested that services sector is negatively affecting growth, whereas both industrial and agriculture shares are positively affect economic growth.
International Journal of Business, Economics and Law, 2013, Vol 2, Issue 2
Economic growth, Sectoral shares, Panel data, Fixed and Random affects