Measuring Structural Change

This chapter examines the specific problems that arise when creating an index of structural change and development, and offers recommendations to address them. It first considers the four steps to composing a policy index and an outcome index: define what the index is trying to measure; identify suitable indicators that track (parts of) the definition decided upon in the first step; normalize the individual indicators and aggregate them into the final index; and analyse the index and report on the results. The chapter then discusses traditional approaches to measuring structural transformation, along with their shortcomings, before introducing a new approach. Insights from New Structural Economics are highlighted, including the argument that the desired structural characteristics of countries are determined by their comparative advantage, which in turn depends on their level of development.