Structural change
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In economics, structural change is a shift or change in the basic ways a market or economy functions or operates. Such change can be caused by such factors as
economic development In the economics study of the public sector, economic and social development is the process by which the economic well-being and quality of life of a nation, region, local community, or an individual are improved according to targeted goals and o ...
, global shifts in capital and labor, changes in resource availability due to war or natural disaster or discovery or
depletion of natural resources Resource depletion is the consumption of a resource faster than it can be replenished. Natural resources are commonly divided between renewable resources and non-renewable resources (see also mineral resource classification). Use of either ...
, or a change in political system. For example, a
subsistence economy A subsistence economy is an economy directed to basic subsistence (the provision of food, clothing, shelter) rather than to the market. Henceforth, "subsistence" is understood as supporting oneself at a minimum level. Often, the subsistence econo ...
may be transformed into a
manufacturing Manufacturing is the creation or production of goods with the help of equipment, labor, machines, tools, and chemical or biological processing or formulation. It is the essence of secondary sector of the economy. The term may refer to a r ...
economy, or a regulated
mixed economy A mixed economy is variously defined as an economic system blending elements of a market economy with elements of a planned economy, markets with state interventionism, or private enterprise with public enterprise. Common to all mixed economi ...
may be liberalized. A current driver of structural change in the world economy is
globalization Globalization, or globalisation (Commonwealth English; see spelling differences), is the process of interaction and integration among people, companies, and governments worldwide. The term ''globalization'' first appeared in the early 20t ...
. Structural change is possible because of the dynamic nature of the
economic system An economic system, or economic order, is a system of Production (economics), production, resource allocation and Distribution (economics), distribution of goods and services within a society or a given geographic area. It includes the combinati ...
. Patterns and changes in sectoral employment drive demand shifts through the income elasticity. Shifting demand for both locally sourced goods and for imported products is a fundamental part of development. The structural changes that move countries through the development process are often viewed in terms of shifts from primary, to secondary and finally, to tertiary production. Technical progress is seen as crucial in the process of structural change as it involves the
obsolescence Obsolescence is the state of being which occurs when an object, service, or practice is no longer maintained or required even though it may still be in good working order. It usually happens when something that is more efficient or less risky r ...
of skills, vocations, and permanent changes in spending and production resulting in
structural unemployment Structural unemployment is a form of involuntary unemployment caused by a mismatch between the skills that workers in the economy can offer, and the skills demanded of workers by employers (also known as the skills gap). Structural unemployment i ...
.


Examples

Historically, structural change has not always been strictly for the better. The
division of Korea The division of Korea began with the defeat of Empire of Japan, Japan in World War II. During the war, the Allies of World War II, Allied leaders considered the question of Korea's future after Japan's surrender in the war. The leaders reached ...
and the separate paths of development taken by each
state State may refer to: Arts, entertainment, and media Literature * ''State Magazine'', a monthly magazine published by the U.S. Department of State * ''The State'' (newspaper), a daily newspaper in Columbia, South Carolina, United States * ''Our S ...
exemplifies this.
Korea under Japanese rule Between 1910 and 1945, Korea was ruled as a part of the Empire of Japan. Joseon Korea had come into the Japanese sphere of influence with the Japan–Korea Treaty of 1876; a complex coalition of the Meiji government, military, and business offic ...
was relatively uniform in economic structure, but after
World War II World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the vast majority of the world's countries—including all of the great powers—forming two opposin ...
, the two countries underwent drastically different structural changes due to drastically different political structures.
South Korea South Korea, officially the Republic of Korea (ROK), is a country in East Asia, constituting the southern part of the Korea, Korean Peninsula and sharing a Korean Demilitarized Zone, land border with North Korea. Its western border is formed ...
's economy before the 1950s mostly consisted of
agriculture Agriculture or farming is the practice of cultivating plants and livestock. Agriculture was the key development in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that enabled people to ...
. During the 1960s and 1970s, Korea began to change their structure to IT,
micro systems technology Microelectromechanical systems (MEMS), also written as micro-electro-mechanical systems (or microelectronic and microelectromechanical systems) and the related micromechatronics and microsystems constitute the technology of microscopic devices, ...
, and also
services Service may refer to: Activities * Administrative service, a required part of the workload of university faculty * Civil service, the body of employees of a government * Community service, volunteer service for the benefit of a community or a p ...
. More than 50% of the world uses a
Samsung The Samsung Group (or simply Samsung) ( ko, 삼성 ) is a South Korean multinational manufacturing conglomerate headquartered in Samsung Town, Seoul, South Korea. It comprises numerous affiliated businesses, most of them united under the ...
smartphone, whose headquarters are located there. Today, South Korea's economy is the 15th strongest economy system. In the Ruhr Area (Ruhrgebiet) in
Germany Germany,, officially the Federal Republic of Germany, is a country in Central Europe. It is the second most populous country in Europe after Russia, and the most populous member state of the European Union. Germany is situated betwe ...
, the economy was mostly marked by
coal and steel industry Coal is a combustible black or brownish-black sedimentary rock, formed as stratum, rock strata called coal seams. Coal is mostly carbon with variable amounts of other Chemical element, elements, chiefly hydrogen, sulfur, oxygen, and nitrogen ...
. During and after the coal crisis began in the 1960s and 1970s, this area started to change its economic structures to services, IT and
logistics Logistics is generally the detailed organization and implementation of a complex operation. In a general business sense, logistics manages the flow of goods between the point of origin and the point of consumption to meet the requirements of ...
. The city
Dortmund Dortmund (; Westphalian nds, Düörpm ; la, Tremonia) is the third-largest city in North Rhine-Westphalia after Cologne and Düsseldorf, and the eighth-largest city of Germany, with a population of 588,250 inhabitants as of 2021. It is the la ...
opened the first technology center named "Technologiepark Dortmund" in the 1980s. Companies including
Signal Iduna The SIGNAL IDUNA Group offers insurance and financial services. The group was created through the merger of the Dortmund-based Signal Versicherungen and the Hamburg-based Iduna Nova Group on 1 July 1999. The companies of these two groups have ...
and
Wilo Wilo SE is a European manufacturer of pumps and pump systems for the building technology, water and industrial sectors with headquarters in Dortmund, Germany. Founded in 1872 as copper and brass factory by Louis Opländer, the company has over 60 ...
are based there. Structural change can be initiated by policy decisions or permanent changes in resources, population or the society. The downfall of communism, for example, is a political change that has had far-reaching economic implications.


Structural changes in employment

Image:US employment by sectors, both genders.png, US employment by sectors, both gender

Economic structural changes impact also on employment. A developing economy typically reveals a high share of employment in the
primary sector The primary sector of the economy includes any industry involved in the extraction and production of raw materials, such as farming, logging, fishing, forestry and mining. The primary sector tends to make up a larger portion of the economy in de ...
, while the share of employment in the
tertiary sector The tertiary sector of the economy, generally known as the service sector, is the third of the three economic sectors in the three-sector model (also known as the economic cycle). The others are the primary sector (raw materials) and the second ...
is high in an advanced/developed economy.


Testing econometric models for structural change

Structural change tests are a type of
econometric Econometrics is the application of statistical methods to economic data in order to give empirical content to economic relationships. M. Hashem Pesaran (1987). "Econometrics," '' The New Palgrave: A Dictionary of Economics'', v. 2, p. 8 p. 8 ...
hypothesis test A statistical hypothesis test is a method of statistical inference used to decide whether the data at hand sufficiently support a particular hypothesis. Hypothesis testing allows us to make probabilistic statements about population parameters. ...
. They are used to verify the equality of coefficients across separate subsamples of a
data set A data set (or dataset) is a collection of data. In the case of tabular data, a data set corresponds to one or more database tables, where every column of a table represents a particular variable, and each row corresponds to a given record of the ...
.


See also

*
Chow test The Chow test (), proposed by econometrician Gregory Chow in 1960, is a test of whether the true coefficients in two linear regressions on different data sets are equal. In econometrics, it is most commonly used in time series analysis to test for ...
*
Structural fix A structural fix refers to solving a problem or resolving a conflict by bringing about structural changes that change the underlying structures that provoked or sustain these problems. According to Heberlein such changes modify human behavior by r ...


References

{{Authority control Business cycle *