The impact of structural transformation on economic growth

Structural transformation is defined as the reallocation of economic activities among the agriculture, industry, and services sectors. However, since structural transformation is a complex process that cannot be explained solely by sectoral mobility, it needs to be addressed from a broader perspective. In this context, structural change can be examined together with the concepts of economic complexity and global value chain. This thesis aims to analyze the relationship between economic complexity and global value chain participation with structural change and the effects of these dynamics on economic growth at both theoretical and empirical levels. Since economic complexity and participation in the global value chain are significant indicators in understanding structural transformation processes and comparing differences among countries, it is important to use these variables in econometric analyses. In this respect, due to the data limitations for the years, the relationship between economic complexity and economic growth for the period 1995–2021 and the relationship between participation in the global value chain and growth for the period 1991–2018 were discussed specifically for G-19 countries. The approach of relating structural transformation to economic complexity and the global value chain constitutes the original value of the thesis as it contributes to understanding the structural differences between countries and examining the dynamics of economic growth. In panel data analysis, in addition to appropriate unit root and cointegration tests, the cross-sectional dependence and homogeneity properties of the series should be determined in order to select the correct estimator in the cointegration equation. For this purpose, considering the T >N feature, the Breusch-Pagan (LM) cross-sectional dependence test and the homogeneity tests developed by Pesaran and Yamagata (2008) were applied and appropriate unit root tests were used based on the results of these tests. Assuming that the series may move together in the long run, the existence of a long-term relationship was investigated using the Westerlund and Edgerton (2008) Panel LM Cointegration Test and the Westerlund (2006) Panel Cointegration Test with Multiple Structural Breaks. Following the identification of the long-term relationship, the long run coefficients are estimated with the CCE and AMG estimators, first for the models without structural breaks and then for the models with structural breaks. According to the findings obtained from the empirical analysis, it has been determined that the effect of economic complexity and participation in the global value chain on economic growth varies accross sections. The results of the analysis in the economic complexity model indicate that the impact of economic complexity on economic growth is directly related to the role of the service sector in the economy, the level of industrialization and the development level of countries. The results of the analysis of the global value chain model point out that the impact of participation in the global value chain on economic growth may vary depending on the structure of forward and backward participation in the global value chain. These findings provide a new perspective to the existing growth and structural change literature and encourage a more comprehensive and multidimensional approach to the economic growth and structural change process.