Structural Change in a Small Natural Resource Intensive Economy: Switching between diversification and re-primarization, Uruguay, 1870–2017

Abstract: The increasing interest in economic diversification, technological sophistication, and production specialization again places structural change at the centre of the economic development theory. However, efforts to measure structural change from a long-run perspective remain scarce. We aim to fill this gap using a synthetic indicator that represents the dynamics of structural change in the long-run and allows us to identify different development patterns. We calculate this indicator including information on 13 production sectors, for a small natural-resource intensive economy (Uruguay), from 1870 to 2017. Our results adequately describe the development patterns that, according to the literature, characterize Uruguayan economic history. In the long run, economic growth causes structural change; only during the First Globalization period the opposite relation prevailed. The decline of the index – which indicates ‘backward movements’ in the production structure – is found in periods of economic crisis and downturn cycles. This dynamics reflects critical time periods associated with the (relative) primarization of the economy. In other words, near to each crisis episode, the economy reacted by going back to primary production probably due to the search for traditional comparative advantages or because in such negative phases the weakest and most exposed sectors were those other than agriculture.