STRUCTURAL CHANGE

It’s changes in the pattern of production of goods and services in an economy

● Some industries grow, other industries decline, new industries develop

● The way goods and services are produced also changes

○ such as automation, with computers and machines replacing workers

○ or offshoring, where production moves to a different country (such as

one with cheaper labour)

Trade, and globalisation more generally, is a classic example of structural change

Structural change is caused by:

● Changes in technology: probably the single biggest cause of structural

change throughout history

○ robots and AI are just the latest examples of new technology replacing
workers with machines

■ or giving workers better machines to work with

Structural change is also caused by changes in demand:

● Changes in tastes and preferences: the economy will shift away from
unpopular products and towards the popular ones

○ Many of these changes are caused by new technology making new

products available

● Changes in income or culture: as people get richer, they shift to better quality
products

○ More services, such as dining out and tourism (well, until the
pandemic)

○ Many changes in culture are really due to rising income

Structural change is also caused by:

● Environmental pressure. This example is current, as we are seeing many

changes driven by the need to reduce carbon emissions

○ And other environmental pressure too

 ● Changes in government laws and policies (which often drives changes
caused by environmental pressure)

○ We saw this was a key driver of globalisation, such as trade

liberalisation and adopting uniform standards

Showing structural changes with the PPF

The PPF shows structural change very well:

● Moving from one point on the PPF to another represents structural change

○ Resources from one industry move to another (the other) industry

● How would you show technological change that benefited one industry?

● Note: We have not developed this model enough to show demand shifts

○ Such as why the economy moved from A to B

Historical patterns of structural change

Economies are often divided into three broad industries:

● Primary: agriculture, mining and forestry. Getting natural resources, the most
basic (important) industry (we gotta eat)

● Secondary: manufacturing, construction and utilities, what you do with the

primary products

● Tertiary: services, doing things for other people, developing ideas

** Some sources try to extend this model by suggesting there are quaternary and
quinary sectors, but those concepts haven’t caught on
Typically, poor economies are mostly primary

● Most people are farmers, fishers

As they grow richer, the other sectors develop

● More manufacturing and construction (this is industrialisation), also more

services

● Along with this comes big movements of people from the countryside to the
cities

Further development sees the services sector develop and the other two sectors
decline

In most developed (rich) economies, most industry and most employment is in

services

● Yes, including Australia

● Despite its reliance on mining exports, almost nobody works there

○ Partly because it’s very capital intensive, partly because it’s a very
small share of the economy
Many people think that manufacturing is more important

● But services dominate all major economies

● If you’re planning to study at university, you (and your parents) probably want
you to have a services job

○ That’s where the highest paying jobs are

BE CAREFUL!

Primary and secondary industries DON'T necessarily get smaller. Why not?

● As a share of production they do, but the amount of production grows over
time

○ Australian agricultural production is higher than it was 20 years ago

(just)
The effects of structural change

Structural change causes the reallocation of resources. The main effect of this is on
people

● We saw this with trade liberalisation - structural unemployment rises, at least

until the displaced workers get new jobs (or retire)

Land use throughout the country also changes.

● Some cities tend to grow (eg Hồ Chí Minh City), but many country towns
shrink or even die
○ Some jargon: abandoned towns are called ghost towns, declining
manufacturing regions are called rust belts

The Dutch Disease is another example of structural change

Economic growth and structural change

The main causes of economic growth (especially new technology, better ways of
using resources) will often also cause structural change

● Economic growth is good overall, but not everyone benefits from it

○ Again, we saw this with trade liberalisation - good overall, but it creates
winners and losers

● As with trade liberalisation, there may be a role for government to help people
and regions adjust to the changes
○ Not to prop up unviable towns or keep people in outdated jobs, but to
help people adjust