Does the Declining Share of Agricultural Output in GDP Indicate Structural Transformation? The Case of Ethiopia
Abstract
It is not uncommon that different government officials and practitioners infer the falling
agricultural share in GDP to the underpinning of structural transformation in an economy. By using various
studies result and a time series of data spanning from 1981 up to 2017, this paper investigated, whether
the declining share of agricultural output in GDP is indicating structural transformation or not in Ethiopian
economy. The study showed that the service is the fastest-growing sector in Ethiopia, and it covers more
than 40% of GDP. The share of agriculture sector was 45% of GDP until 2011, while the industry sector has
been stagnating. Thus, it shows how the falling share of the agriculture sector in GDP is being superseded
by the service sector. Empirical works also reveal that even though the share of the agricultural sector in
GDP is falling, it is the primary source for the overall economic growth of Ethiopia. The share of the rural
population has decreased from 89 percent in 1981 to 80% in the year 2017. So the vast population of the
country is living in rural areas where agricultural-based activities are common. Lack of labor shift from the
agricultural sector to the industrial sector can also be attributed to the insufficient expansion of the
modern industrial sector to absorb the growing force labor. Furth more, the demographic transition also
showed a relative decline. Since structural transformation involves several interrelated processes, the
declining share of agriculture output to GDP alone cannot explain the prevalence of structural change; the
other processes like; industrialization, urbanization, and demographic transition need to be scrutinized
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