Structural Change in Sub-National Economies of Punjab and Gujarat: A Comparative Study

By Sawhney, Upinder; Singh, Tina | Political Economy Journal of India, January-June 2018 | Go to article overview

Structural Change in Sub-National Economies of Punjab and Gujarat: A Comparative Study


Sawhney, Upinder, Singh, Tina, Political Economy Journal of India


Introduction

Economic development has historically been related with existence of structural changes in all economies of the world. The most universal structural changes that have been witnessed in the past have followed a pattern of reallocation from agriculture to industry and thereafter to services sector. These paradigm shifts have not only been observed in earlier times, but also prevail across nations irrespective of their size and level of development. Structural changes are bound to occur; there might be a variation in its pace and pattern. Structural shifts and changes in sectoral shares occur both for national product and occupational structure.

The conceptual foundation for the analysis of structural change goes back to Adam Smith (1776). The evolution of economic activity across three broad sectors (agriculture, manufacturing and services) was observed by Fisher (1939) followed by Clark (1940) who dealt with reallocation of labour force across these sectors. Kuznets (1957) established the stylized facts of structural transformation; studied the relative importance of sectors in the economy in terms of production and factor use.

Structural changes play a fundamental role in economic development. In fact, there is a two-way process between the two. On one hand, economic development affects structural changes while on the other structural changes influence the rate of economic development. "Some structural changes not only in economic but also in social institutions and beliefs are required, without which modern economic growth would be impossible" (Kuznets 1971). Chenery (1979) views economic development "as a set of interrelated changes in the structure of an economy that are required for its continued growth." Another development model that throws light on structural transformation is the 'stages approach' by Rostow (1960). His theory suggested that developed economies have passed through five stages to reach their current degree of development; initiating from the traditional stage, to the preconditions stage, then to the take-off stage, to the drive to maturity and finally, to the age of high mass consumption.

The interrelated processes of structural change that accompany economic development are jointly referred to as structural transformation Syrquin (1988). The accumulation of human and physical capital and alteration in the structure of demand, trade, production and employment are regarded as the core of structural transformation (Chenery 1986 a), whereas the interrelated socio-economic variations are considered as peripheral.

Eminent scholars have given the definition of "structural change". On the basis of the preliminary work on the patterns of industrial growth, Chenery (1960) defines structural change as "a broad process of accumulation, resource allocation, and demographic and distributional transition." Syrquin (1988) summarises the vintage of development economics and opines that the principles of structural change are "increases in the rates of accumulation (Rostow, Lewis), the shifts in the sectoral composition of economic activity (industrialization) focusing initially on the allocation of employment (Fisher, Clark) and later on production and factor use in general (Kuznets, Chenery); and changes in the location of economic activity (urbanization) and other concomitant aspects of industrialization (demographic transition, income distribution)."

A more recent view defines structural economic transformation as "the evolution of an economy's structure from low productivity traditional activities (such as in traditional agriculture) to higher productivity modern activities (such as in manufacturing and services)" in UNIDO's report (2012).

In the present paper, an attempt has been made to undertake a comparative study of the pace and pattern of structural change in two relatively developed sub-national economies of India, namely Punjab perceived to be predominantly agricultural and Gujarat industrial respectively. …

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