Structural Convergence

This paper establishes empirically the existence of structural convergence: country pairs that converge in terms of per capita income also tend to converge in terms of their sectoral similarity, measured by the bilateral correlation of their sectoral labor shares. This is a robust feature of the data at various levels of sectoral disaggregation and data coverage. We shed light on some explanations for structural similarity, chiefly trade related determinants. Convergence in relative factor abundance accounts for approximately 1/3 of the extent of structural convergence. We argue that the existence of structural convergence has important implications for our understanding of business cycles transmission, of long-run development patterns and of the dynamics of specialization.