8 julio, 2024

Structural change: concept, characteristics, examples

He structural change It is the set of changes in different aspects of the economy, such as the sectoral composition of employment and production, the industrial and financial organization, the distribution of income and wealth, political institutions, demography, and even the value system of the society.

In the history of economic development, structural change is understood as the different adjustments of productive activity in the economy. It can also be a big change in the way an industry or market performs, usually triggered by major economic developments.

This type of change modifies the paradigms used to determine courses of action, for example, by changing the way market orders are processed. One of the main drivers of structural change is innovation.

Areas of the economy with large R&D components could have a large impact on existing methodology. Not only will companies have to adapt to the new order, but so will the markets.

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Characteristics of structural change

The absence of a general theory that explains structural change in the economy, makes scholars in this field of economic development summarize the concept using three characteristics, as observed in various empirical studies, as follows:

Fall in share of agriculture

The most valued and frequently observed characteristic is the increase in the share of the modern sectors of the economy (industry, services, technology) in the total gross domestic product, which is associated with the fall in the share of agriculture.

Decreasing labor force in agriculture

The percentage of the total labor force that works in the agricultural sector decreases, while in the modern economic sectors it increases.

This is due to the migration of the labor force to the urban area from the rural area, which means that the center of the national economy shifts from the rural areas to the cities. Therefore, the degree of urbanism increases significantly.

Productivity growth

However, the concept of structural change has recently been broadened by different researchers, trying to explain this type of change by observing labor productivity growth within a sector and between sectors.

Factors that can cause structural changes

– Global changes in stocks of capital and labor.

– New economic developments.

– Due to changes in the supply and demand of all resources.

– Changes in the availability of resources due to wars or natural disasters.

– Changes in the political landscape with the coming to power of a new regime or major reforms in existing laws, especially with regard to business regulation and taxation.

Examples of structural changes

Smartphone

The arrival of this electronic device was a big change for both consumers and companies.

This was because certain products, such as flashlights and cameras, saw their demand decline because their functionality was available to everyone as part of a compact device whose main use was something else.

This led to the development of applications for all uses, including monitoring a bank or business account, finding information, and making purchases.

oil market

In the futures market, crude oil for future delivery is generally more valued than spot oil today.

If there are production cuts, either by decree of the producing countries or political instability in the producing regions of the world, fears of low reserves will arise. So the oil market may undergo a structural change.

Short-term demand for oil may increase as people fear lower supply levels in the future. Consequently, the market may shift to a retracement, where oil today is more valuable than oil in the future.

technological innovations

The appearance and diffusion of essential innovations brings with it a profound structural impact on the economy. These technological innovations completely change the sectoral composition of the economy.

The key sectors associated with new technological systems slowly increase as the paradigm develops, and those key sectors associated with older technologies see their influence diminish at the same time.

Thus, one can see the relative rise and fall of iron, steel, plastic, and information, or, in the realm of energy systems, hydropower, steam power, electricity, and fossil fuels.

Government changes

In politics, structural changes are considered as the entire process of transition from one regime to another. Changes of government occur, in a democracy, when the results of the elections are given.

The change of the political structure in its entirety occurs when the governorships, mayoralties and the command cabinet of the president are changed. Senates and congresses are perfect examples of structural changes in the medium term.

coronavirus pandemic

The coronavirus pandemic has changed several aspects of the economy and society that are likely to remain in the long term, therefore it is considered a structural change.

Differences between structural change and conjunctural change

The conjunctural changes occur right at the moment, they do not have a progressive growth like the structural ones. In fact, they usually occur in response to events that cause a disturbance.

Conjunctural change could be defined as any change that seeks a specific modification of a system in the short term, while structural changes are usually much larger and occur in the long term.

transformation vs alteration

Structural change becomes a collective phenomenon, since it must cause a transformation of the social organization in some of its components or in its entirety. It is identified in time, that is, from a point of reference in the past.

It must be possible to observe that there is a change, on what it is based and to what magnitude it has occurred. Furthermore, it must affect the course of history and have some permanence.

On the other hand, the conjunctural change is also called an alteration of the balance, because it consists of trying to correct the condition of imbalance faced by some of the parts of the system, but without this implying important variations in the total system.

Social relationships

Structural change occurs when social relations are modified, considerably influencing the interaction components between the entities that make up society, without their existence being put at risk.

The change of an economic system or a regime of government can be examples of structural changes.

Supporters of structural functionalism maintain that change is intrinsic to social systems, but it must occur gradually and stably.

Although the original stability undergoes alterations, a new equilibrium point tends to be established with the application of integrating elements that seek to correct these modifications, to ensure the stability of the system.

For example, structural change manifests itself when moving from an agricultural society to another that is industrial.

temporary change

On the other hand, the conjunctural change is shown at a certain moment, when the social conditions that are needed for it to happen come together, this being the result of something that is not working in the social structure, affecting its stability externally.

When this change occurs as a consequence of the dynamics of the social system, it tends to be repeated with some frequency. An example is economic crises, generating a lack of employment opportunities and poverty.

References

Akhilesh Ganti (2019). Structural Change. Investopedia. Taken from: investopedia.com.
University of Professional Development (2020). Exchange Rates: Structural and Conjunctural. Taken from: esmunidep.files.wordpress.com.
UK Essays (2020). The Concept of Structural Change Economics Essay. Taken from: ukessays.com.
Bart Verspagen (2020). Structural Change and Technology. Taken from: cairn.info.
Wikipedia, the free encyclopedia (2020). Structural change. Taken from: en.wikipedia.org.

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