The Significance of Structural Transformation for Poverty Alleviation in Intergovernmental Authority on Development

ABSTRACT How important is structural transformation for poverty reduction in the region of the Intergovernmental Authority on Development? The novelty of the study lies in examining the relationship between structural transformation and poverty in the Intergovernmental Authority on Development (IGAD) region using a sectoral analysis with a focus on manufacturing, services, industrial and agriculture sectors. Data were collected from the World Bank for the period 1990–2022. A panel autoregressive distributed lag model was employed. The results showed that the industrial sector reduced poverty levels in the short and long run. In the long run, it was established that the industrial sector had no impact on poverty reduction in the IGAD region. The long‐term findings suggest that for these countries, achieving structural transformation by shifting resources to industrial development is the most effective and sustainable pathway to reducing poverty. Resources should be moved to the mining, manufacturing, construction, water and electricity sectors for effective poverty reduction. Although services account for a significant proportion of GDP, their contribution to poverty reduction is minimal because they involve low‐value and low‐productivity service activities that are non‐tradable and informal. Key policies proposed included institution creation, research and development, and measures to promote peace and security.