Abstract/Summary

This study investigates Cambodia's economic structural transformation and growth using descriptive and productivity decomposition methods on output and employment data of 12 industries from 2000 to 2022. 

• Cambodia's economy is undergoing a structural transformation, and the growth driver has been shifting from agriculture to manufacturing and services. 
• Manufacturing is still dominated by garments and textiles. However, the export of electronics and machinery, agro-industry, and plastic products increased, indicating a sign of diversification. 
• Output in tradable services (such as information and communication, transportation, business service activities, and finance) has increased. 
• The aggregate productivity growth rate is volatile; on average, it is still moderately low compared to other countries at the same income level. 
• Aggregate productivity growth in the last decades was driven more by inter-sectoral and less by intra-sectoral labour reallocation. 

- Inter-sectoral labour reallocation from low-productivity sectors such as agriculture to high-productivity sectors such as manufacturing and services contributed the largest to increasing the overall aggregate productivity growth of the economy. However, this effect was moderate due to labour mobility barriers.

- Intra-sector productivity growth also contributed to increased aggregate productivity growth, suggesting that most sectors have productivity growth rather than decline. However, the sectoral productivity growth was relatively small, which limited this effect.

- Labour reallocation to the high-productivity growth sector reduced aggregate productivity growth to a limited extent. The contribution from this item is small because high-productivity growth sectors tended to experience falling employment share while low-productivity growth sectors experienced rising employment share. 

Policy Implication and Recommendations:

• To increase aggregate productivity growth, Cambodia has to: 

- Increase employment in high-productivity and high-productivity growth sectors

- Enhance intra-sectoral productivity growth. 

- Reduce barriers to labour mobility across sectors by equipping the workforce with skill readiness 

- Promote more investment in high-productivity and high-productivity growth sectors to create more jobs.