Abstract/Summary

Economic development is a complex process in which aggregate output growth is accompanied by changes in the sectoral structures of output and employment. Although scholars like Simon Kuznets and Hollis Chenery have demonstrated, from the late 1950s, the quantitative importance of structural change, the issue remained largely ignored by mainstream economists, who tended to treat structural change as a by-product of growth of lesser importance. However, over the last two decades the interest on the topic has been revigorated, fuelled by concerns about premature deindustrialisation and the viability of alternative routes to prosperity. This Thesis aims to contribute to the growing literature on the causes and consequences of structural change focusing on two issues that are still largely neglected. First, it investigates whether the effect of human capital on aggregate economic growth depends on the type of economic specialisation of the country. Most cross-country studies do not find a significant positive effect of human capital on growth. Failure in taking the demand for skilled labour into account may be the cause. The estimations suggest the existence of a complementarity between human capital endowment and economic specialisation, proxied by the Economic Complexity Index. Second, the Thesis investigates whether foreign direct investment (FDI) contributes to structural change in host economies. Inspired by stages-of-development approaches to FDI such as the Investment Development Path framework, it tests, for a group of developing countries, whether aggregate FDI affects the employment structure, whether the effect depends on the sectoral concentration of FDI and whether this vary according to the stage of development of the country. In a separate chapter, it investigates, using industry-level data of post-communist countries, whether the effect of FDI on productivity growth and structural change depends on institutional quality, human capital endowment, participation in global value chains (GVCs) and alignment to comparative advantage.