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Structural Change

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International competition changes the economy. However, governments should refrain from trying to push structural change into a specific direction.

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Industrialised countries often react to the increasing competition from emerging markets by focusing on those sectors of production in which they are superior to their competitors. German companies, for instance, concentrate on highly specified tasks such as research and development in their home-country and perform simple manufacturing processes abroad.

Before the global economic and financial crisis, building a large service sector was considered indispensable for reaching economic prosperity. This has changed: History has shown that both countries with a large service sector and countries with an important industrial sector can reach high income levels. Therefore, governments should refrain from steering structural change into a particular direction. Rather, they should allow for flexibility in the labour market, so as to enable the downsizing of sectors that are no longer profitable and to encourage entrepreneurship and growth in growing economic sectors.

Vera Demary

Dr. Vera Demary

Head of the Research Unit Digitalization, Structural Change and Competition

Tel+49 221 4981-749

Mailvera.demary@iwkoeln.de

@V_Demary

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Michael Grömling

Prof. Dr. Michael Grömling

Head of the Research Group Macroeconomic Analysis and Forecast

Tel+49 221 4981-776

Mailgroemling@iwkoeln.de

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Klaus-Heiner Röhl

Dr. Klaus-Heiner Röhl

Senior Economist for Firms

Tel+49 30 27877-103

Mailroehl@iwkoeln.de

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