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 a ...

, 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 o ...

, 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 ...

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 econo ...

may be liberalized. A current driver of structural change in the world economy is

globalization Globalization, or globalisation (English in the Commonwealth of Nations, Commonwealth English; American and British English spelling differences#-ise, -ize (-isation, -ization), see spelling differences), is the process of foreign relation ...

. Structural change is possible because of the dynamic nature of the economic system. Patterns and changes in sectoral employment drive demand shifts through the

income elasticity In economics, the income elasticity of demand is the responsivenesses of the quantity demanded for a good to a change in consumer income. It is measured as the ratio of the percentage change in quantity demanded to the percentage change in incom ...

. 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 Japan in World War II. During the war, the Allied leaders considered the question of Korea's future after Japan's surrender in the war. The leaders reached an understanding that Korea would be l ...

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 ...

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 o ...

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 World War II by country, vast majority of the world's countries—including all of the great power ...

, 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 peop ...

. 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. 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 (FRG),, is a country in Central Europe. It is the most populous member state of the European Union. Germany lies between the Baltic and North Sea to the north and the Alps to the sou ...

, the economy was mostly marked by

coal and steel industry Coal is a combustible black or brownish-black sedimentary rock, formed as rock strata called coal seams. Coal is mostly carbon with variable amounts of other elements, chiefly hydrogen, sulfur, oxygen, and nitrogen. Coal is formed when dea ...

. 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 th ...

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 b ...

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 ...

, 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 secon ...

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 d ...

References

{{Authority control Business cycle *

Examples

Structural changes in employment

Testing econometric models for structural change

See also

References