Multidimensional structural transformation index: a new measure of development

Achieving structural transformation is believed to be a priority agenda in development policy of developing countries. However, the discussion of structural transformation has been bound to an analysis of labor shifts and productivity convergence between economic sectors. This narrow definition of structural transformation neglects the vital aspect of structural transformation: social transformation. This study tries to fill this gap by proposing a multidimensional structural transformation index (STI). The proposed index measures structural transformation in two phases based on economic and socio-demographic indicators. This multidimensional indicator may contribute to the development literature as it can be used to measure the extent of structural transformation across economies and overtime. The investigation of the relationships of the STIs with the GDP per capita revealed that the STI based on economic and social dimensions appears to have greater effect on GDP per capita than STI focusing on economic indicators. The implication of this is that structural transformation containing social transformation as its priority is essential to achieve inclusive growth, sustain structural transformation, significantly reduce poverty, and hence enhance economic development. Each of the STI is a single number lying between 0 and 1, where 0 indicates lack of structural transformation and 1 complete transformation. The index is mathematically consistent, easy to compute, and comparable across countries overtime.