An analysis of the relationship between sectoral activity, diversification, and structural change in the economy

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Virginia Tech

The purpose of this study is to analyse the changes, if any, that take place in regional economic structures in the process of diversification, and the roles of sectors in such changes. Input-Output and Structural Path Analysis are used to develop indices that may be used for carrying out the analysis of these issues. A method is also developed for examining the role of linkages with respect to the fundamental structure of production outlined by Simpson and Tsukui. Using these indices and methods, the economic relationships between sectors and the economic structures of six planning districts in Virginia, in addition to the economies of the state of Virginia and the U.S. are analysed and compared. On the basis of these analyses, it is concluded that: (a) The feature of bloc independence found at the level of first order transactions in an economy is diluted at the level of higher order transactions in the metals bloc. However it persists strongly at higher levels of transactions in the nonmetals bloc. (b) The sectors of the metals, nonmetals and services blocs show a proportionate development of linkages irrespective of the degree of diversification of the economy. (c) Contrary to Hirschman's suggestion that complexity of linkages increases with diversification, the results suggest that diversification leads to less complexity in the linkage relationships. (d) The linkages of the agricultural sectors in Virginia are biased towards the services sectors. In the case of the agricultural sectors at the national level, the linkages are biased primarily towards the manufacturing sectors. The implications of these findings for development policy are discussed.

sectors, planning districts