FACTA UNIVERSITATIS Series: Economics and Organization Vol. 16, N o 2, 2019, pp. 197 - 213 https://doi.org/10.22190/FUEO1902197S Review Paper INTERSECTORAL LINKAGES AND THEIR CONTRIBUTION TO ECONOMIC GROWTH IN THE REPUBLIC OF SERBIA1 UDC 330.35(497.11) Jelena Stanojević 1 , Bojan Krstić 2 1 University of Niš, Faculty of Sciences and Mathematics, Serbia 2 University of Niš, Faculty of Economics, Serbia Abstract. The high level of interconnection between economic sectors, namely agriculture, manufacturing and the service sector, imposes the need to understand intersectoral structural changes and transfer of resources between sectors in order to perceive their contribution to economic development. Based on the rich information base compiled by data from various national and international statistic sources, intersectoral structural changes in the Republic of Serbia as one of the transition economies are analysed from different aspects. The paper deals primarily with the share of economic sectors in the gross domestic product. Further, it points to the participation of economic sectors in overall employment, but also in international trade. The research goal is to analyze the structural changes in the Serbian economy, identify the direction of resource transfer between sectors, as well as their contribution to the economic development measured by different indicators. Key words: intersectoral linkages, structural changes, economic growth, Republic of Serbia. JEL Classification: E01, O11, O40 Received December 14, 2018 / Revised April 29, 2019 / Accepted May 03, 2019 Corresponding author: Jelena Stanojević University of Niš, Faculty of Sciences and Mathematics, Višegradska 33, 18000 Niš, Serbia E-mail: jelenastanojevic83@yahoo.com 198 J. STANOJEVIĆ, B. KRSTIĆ 1. INTRODUCTION The economic growth of developed countries is characterized by the reallocation of resources from agriculture to non-agricultural activities, accompanied by further shifts from manufacturing to the service sector. In general, several important phases of these changes can be distinguished (Adelman, 1999, pp. 103-134). In the first stage of development, a large part of the active workforce is related to agriculture. Along with the progress, there is a movement of the labour force from agriculture to the manufacturing and service sector. The service sector also advances simultaneously with manufacturing due to its multiple interconnection, primarily in the domain of transport, distribution and finance. Therefore, both sectors show an increase in relative importance in relation to agriculture. However, over a certain period of economic development, the participation of manufacturing in the total employment is stabilized, while on the other hand the service sector continues to expand at the expense of the agricultural sector. In the final stage of development, the economy reaches its peak. During this phase, the service sector continues to progress, but now at the expense of manufacturing whose relative significance is decreasing. If the service sector continues to grow and there is no increase in the total active labour force, this increase is possible only with a significant reduction of employment in manufacturing as well (Kenneth et al., 1992, pр. 2). The economic justification for such long-term movement between sectors can be found both on the supply and demand side. Firstly, the relative importance of agriculture should be considered. On the supply side, a large increase in productivity leading to an increase in agricultural production is a result of a mechanization development, improved transport, greater use of fertilizers and pesticides, as well as the overall advancement of scientific knowledge and techniques of agricultural management. However, productivity growth is not accompanied by a steady increase in demand for agricultural products (Johnston, 1990, pp. 1109-1123). The growth in income per capita usually goes hand in hand with a decrease in the income elasticity for demand of food, which ends up with the creation of surplus products. As a result, there is a decline in agricultural product prices, profitability and farmers' earnings, and the movement of workers from agriculture due to lack of work or inadequate salaries (Kenneth et al., 1992, pр. 5). On the other hand, an increase in the relative importance of the service sector can be also explained by factors on the supply and demand side (Hayami and Godo, 2005, p. 32). The original explanations focused on the demand side. High income elasticity of demand for services at a high level of income per capita indicates the prosperity of the economy where more revenue is allocated and spent on services. However, only a small part of the employment growth in the service sector can be justified by the demand for services. Interestingly, the rise in some of the services is closely linked to the rising demand for both agricultural and manufacturing products (e.g. travel, entertainment, etc.) (Kenneth et al., 1992, pр. 5). Certain movements within the economy of the Republic of Serbia (further: Serbia or RS) as one of the transition economies also indicate a change in sectors’ relative importance. The structure of the Serbian economy has been constantly evolving in response to ever-changing domestic and international conditions. Serbia has had a period of rapid structural changes with a changing external environment, but also an Intersectoral Linkages and their Contribution to Economic Growth in the Republic of Serbia 199 internal environment with regards to the changed demographics. While the external environment has special significance in the secondary sector, the main factors of the structural changes in the agricultural sector are internal (although often with an international dimension). Unlike the agricultural sector, the service sector in Serbia has been unstoppable in the previous period. Also, manufacturing shifted to the production of knowledge-based products in order to put emphasis on design and other value-added components. Computerization and information technology have replaced thousands of office workers who have sought work in other service activities. In economic theory is widely accepted the existence of interrelation between economic growth and structural changes, whether measured by the employment share of economic sectors or through their participation in the realized domestic or international value (Dietrich, 2009). Therefore, the paper primarily focuses on intersectoral structural changes. After examining the theoretical framework of the concept of structural changes, intersectoral structural changes in the Serbian economy are elaborated from the aspect of sectors’ share in gross domestic product, employment and international trade. 2. THEORETICAL FRAMEWORK: THE CONCEPTUAL BASIS OF STRUCTURAL CHANGES IN THE ECONOMY Structural changes, their theoretical perception and analysis of the factors that have caused them, have attracted the attention of prominent economists in the past (Krstić et al., 2015, pp. 31-44). However, despite the rich research base in this field, there are certain doubts in the literature regarding interpretation of the concept of structural changes. Namely, the term “structural change” has not always been used in this form bearing in mind that economists dealt with its analysis, but using a different terminology (Quatraro, 2012, pp. 37-38). Structural changes, analyzed in that period as structural transformations, were one of the main topics in the classical economy. Neoclassical economists have not considered structural changes as an important factor of economic development, but only as the automatic result of market development. While neoclassical economists have not attached great importance to this problem, classical economists have considered structural changes from the perspective of moving labour from agriculture as a traditional activity, to manufacturing and services as modern activities (Memedovic & Lapadre, 2010, p. 4). One of the most prominent representatives of the classical economy, Adam Smith, emphasized in his work "Wealth of Nations" (1776) that agriculture is mainly specializing in poorer countries, where the nature of tasks being performed determines the division of labour and thus limits production efficiency. On the other hand, richer countries specialize in manufacturing, bearing in mind that manufacturing activities provide the ability to perform a variety of tasks and thereby increase productivity. At the same time, Smith under structural changes implied carrying out production activities within organizations, and not just a sectoral composition of the economic system (Quatraro, 2012, p. 37). 200 J. STANOJEVIĆ, B. KRSTIĆ Apart from Adam Smith, also Simon Kuznec (1930), Artur Burns (1934) and Alan Fisher (1939) greatly contributed to the study of structural changes. Important empirical evidence can be found in their works about the rise and fall of certain economic sectors, but above all the manufacturing sector. They also provided an explanation of factors that have led to changes in industrial leadership in different countries. Bearing that in mind, Kuznec considered structural changes to be one of the important factors of development, although it meant only sectoral changes in employment and production. From this perspective, the economic development of countries and regions is strictly defined by performance of the leading sectors (Krstić et al., 2015, pp. 31-44). Classical economists, primarily Kuznec, Burns and Fischer, have provided an interpretation of structural changes starting from the three-sector model of the economy. In doing so, the economy can be divided into three major economic aggregates: the primary sector that includes agriculture, fishery and forestry; a secondary sector that includes the production of capital and consumption goods through the combination of capital, labour and intermediate goods; and a tertiary sector that involves the provision of various services. The replacement of the contribution of three main sectors to the overall development of the economy represents the backbone of the classical model (Krstić et al., 2015, pp. 31-44). Kuznec, as one of the initiators of the empirical analysis of structural changes, has laid the foundations of the so-called theory of slowdown in development. The initial assumption of this theory is the uneven growth rates, as well as the interweaving of cross-sectoral and inter- national dimensions. Starting from this, the achieved level of development of each country depends to a great extent and is determined by the dominant sector of the economy. Therefore, a contribution of Kuznets and his theory of slowdown in development is pointing out important structural transformations (changes) of the economy as one of the crucial features of modern economic growth. At the same time, fundamental assumptions of structural changes are a change in the focus of the economy from agriculture to manufacturing and from manufacturing to services, as well as changes in the scale of production units and a shift towards other forms of organization of economic entities other than their own enterprises (Quatraro, 2012, p. 42). However, other economists who offered some interpretations of structural changes were also distinguished. For instance, according to Robinson and Sirkin, structural changes are a set of changes in production and demand, trade, and the use of factors reflected in the income per capita increase (Ark, 1995, p. 1). Further, Maklup (1963) puts emphasis on the distribution of factors of production between the economic sectors, territories, various products, occupations, etc. and under structural changes he first of all takes into account different arrangements of production activities in the economy (Quatraro, 2012, p. 37). "Although the concept of structural changes can be defined in different ways, it most often refers to long-term and lasting changes in the sectoral composition of the state or region during the economic development process. More specifically, structural changes are associated with the modification of a relative importance of different sectors over time, measured by their participation in production and employment" (Krstić et al., 2015, pp. 31-44). Intersectoral Linkages and their Contribution to Economic Growth in the Republic of Serbia 201 The concept of structural changes is difficult to be uniquely defined due to the complexity of the phenomenon. Also, there is a low possibility of finding a universal method of their measurement. However, it is generally accepted that structural changes can be measured by reallocating capital and labour between sectors and regions, depending on the level being analyzed. Changes in the sector, in markets of goods and services, and in the nature of production processes should also be taken into account (Raiser et al., 2003). Therefore, structural changes can be identified and monitored having in mind different levels. They occur, above all, in the conditions when companies respond to changes in relative input and output prices, but also to challenges arising from the emergence of new technology and knowledge. However, in the case of the same or similar effects of structural changes to all economic actors within the sector, it is considered that they occur at a sectoral level. Structural changes can also be manifested between sectors as well as within them. Nevertheless, the most intense are those that occur at the macroeconomic level, causing changes of varying intensity in all sectors. Consequently, three levels of structural change can be distinguished (Downes & Stoeckel, 2006, p. 12): 1. At the enterprise level - implementation of modern technology, new management methods, modern production practices, response to changes in relative labour costs, capital and other factors of production; 2. At the sector level - certain structures of companies are favourable under the pressure of competition, but changes occur in the operating environment along with the change in input prices; 3. Between sectors - changes in domestic demand, but also in global terms lead to conditional changes in consumption patterns (usually as a result of demographic changes, the application of modern technology, etc.), the change in the comparative advantage of the economic sectors determines the outcome of the market game. The key to successful adaptation to structural change is adaptability, flexibility and competitiveness (which leads to innovation and adaptation). These characteristics are associated with a high level of productivity, rising revenue and a low inflation rate in the country. For this reason, macroeconomic policy makers seek to maintain a macroeconomic environment with low interest and unemployment rates. A good macroeconomic and microeconomic policy should be strongly mutually complementary (Downes & Stoeckel, 2006, p. 5). 3. RESEARC RESULTS AND DISCUSSION 3.1. The share of economic sectors in the gross domestic product of the Republic of Serbia Gross domestic product (GDP) in the last fifty years has been the most often used indicator of economic progress of a country and welfare of its population. This indicator shows how efficiently the economy functions by compressing the total value of state economic activities in only one number (Mankiw, 2002, p. 53). 202 J. STANOJEVIĆ, B. KRSTIĆ "GDP represents the market value of all finished goods and services produced within a country over a given period of time" (Mankiw, 2001, p. 208). It can be calculated by summarizing the “value of personal consumption expenditure (consumption of households for goods and services), government expenditure (public expenditures for the provision of goods and services for the future) and net exports (difference in value between government exports and imports)” (Mankiw, 2001, p. 208). According to the degree of development, measured by GDP per capita, national economies can be classified into three groups: factor-driven, efficiency-driven, and innovation-driven (Table 1). Table 1 Different levels of the economic development Level 1: Factor driven Transition from level 1 to level 2 Level 2: Efficiency driven Transition from level 2 to level 3 Level 3: Innovation driven GDP per capita <2000 2000-2999 3000-8999 9000-17000 >17000 Subindex “Basic factors” 60% 40-60% 40% 20-40% 20% Subindex “Efficiency factors” 35% 35-50% 50% 50% 50% Subindex “Innovation and sophistication factors” 5% 5-10% 10% 10-30% 30% Source: WEF. (2016-2017). Global Competitiveness Report. Geneva: World Economic Forum, р. 38 The economy is driven by factors of production in the first stage of economic development. Countries at this level of development compete with the engagement of the basic factors of production, primarily human and natural resources. Companies base their competitiveness on low prices and sale of mainly basic products, achieving low productivity and low wages. As the economy becomes more competitive, it increases productivity and earnings of workers. National economies are moving towards a stage of development that is efficiency driven. At this stage, the production process and product quality should be improved since earnings of workers grow, but prices of products cannot be increased. Competitiveness at this level is focused on higher education, efficient financial market and market of goods and services, etc. Innovation driven economy as the highest level of a country development encourages companies to produce innovative and distinguished products that will contribute to the overall competitiveness. At this stage of development, in addition to the previously mentioned factors of development, the crucial roles in the economy development belong to intangible forms of capital, such as research and development, science, education, innovation, competencies, etc. Hovewer, the outcome of these fields largely depends on sufficient level of investment, proving that the financial capital is still of high importance at this level of economy development (Frane, 2014, pp. 1-2). Intersectoral Linkages and their Contribution to Economic Growth in the Republic of Serbia 203 Table 2 shows data for gross domestic product of Serbia in RSD, USD, and EUR in the period 2000-2015. Based on Table 2, GDP per capita of Serbia in 2015 amounted to 5,235 USD representing half of the value in Efficiency driven stage (3000-8999 USD). Accordingly, Serbia has to increase GDP in order to qualify for the transition to a higher stage. Table 2 GDP of the Republic of Serbia in RSD, EUR, USD, in the period 2000-2015 Total mil. RSD Total mil. EUR Per capita, EUR Total mil. USD Per capita, USD 2000 1,989,783.5 25,717.0 3,421.5 23,593.5 3,139.0 2001 2,089,127.7 12,928.5 1,723.0 11,581.1 1,543.4 2002 2,237,785.6 16,213.8 2,161.8 15,277.3 2,037.0 2003 2,336,593.1 17,486.8 2,337.6 19,755.1 2,640.9 2004 2,547,973.3 19,128.0 2,563.0 23,776.4 3,185.8 2005 2,689,141.9 20,407.6 2,742.7 25,361.2 3,408.4 2006 2,821,026.8 23,610.0 3,185.6 29,603.7 3,994.3 2007 2,987,150.3 28,784.6 3,899.5 39,385.4 5,335.6 2008 3,147,461.2 33,417.9 4,546.5 48,856.6 6,647.0 2009 3,049,387.2 29,967.0 4,093.4 41,658.7 5,690.5 2010 3,067,210.2 29,766.3 4,082.0 39,370.4 5,400.0 2011 3,110,196.1 33,423.8 4,619.0 46,463.7 6,421.0 2012 3,078,619.2 31,683.1 4,400.0 40,675.9 5,648.0 2013 3,157,793.1 34,262.9 4,781.0 45,512.1 6,351.0 2014 3,908,469.6 33,186.0 4,672.0 44,143.1 6,190.0 2015 4,043,467.8 33,491.0 4,720.0 37,145.7 5,235.0 Source: Statistical office of the Republic of Serbia (2005-2016). Statistical Yearbook. In Table 3, the gross value added and gross domestic product of Serbia from 2000 to 2014 are given. Based on the provided information, all occupations in the analysed period achieved a rise in absolute values in dinars. However, the highest increase is recorded in wholesale and retail sale trade, information and communication, and financial activities. The total gross value added of Serbia in 2014 compared to 2000 increased by 37%, while gross domestic product has been increased by 56%. Table 4 shows the gross domestic product of Serbia, overall and per economic sectors, in absolute and relative values in the period 2000-2014. The share of primary sector in gross value added in the analyzed period is around 10%, the share of secondary sector is around 30%, and the share of tertiary sector is around 60% in gross value added. 204 J. STANOJEVIĆ, B. KRSTIĆ Тable 3 Gross value added per occupation and gross domestic product of Serbia, in the period 2000-2014, constant price 2010 2000 2001 2002 2003 2004 2005 2006 2007 Agriculture, forestry and fishing 223,897 262,560 24,460 227,688 271,093 257,961 257,784 237,455 Mining 24,947 19,126 30,479 34,597 35,570 36,075 39,242 36,671 Manufacturing 428,713 387,339 364,526 368,014 381,653 381,491 388,732 425,533 Electricity, gas and steam supply 64,114 64,895 63,808 72,909 77,755 78,702 82,495 86,613 Water supply and waste water management 31,771 28,423 26,601 29,592 29,878 32,163 32,372 33,275 Construction 82,317 73,650 94,209 116,470 131,611 130,504 150,964 151,241 Wholesale and retail trade, repair of motor vehicles 118,037 109,030 132,120 153,236 183,923 251,227 275,581 315,113 Traffic and storage 79,191 84,031 86,908 92,967 101,493 106,350 123,313 137,448 Accomodation and food services 34,993 30,267 28,607 32,415 32,957 36,178 40,991 38,787 Information and communication 54,840 55,318 64,871 74,040 75,572 85,530 97,398 118,189 Financial and insurance activities 39,007 31,950 35,104 37,547 43,375 51,885 67,912 82,070 Real estate 244,580 247,891 252,198 251,607 253,149 268,004 269,579 271,238 Professional, scientific, innovation and technical activities 89,662 61,312 58,976 54,666 69,689 72,644 82,097 95,664 Administrative and support service activities 30,888 23,515 21,574 24,625 22,543 31,715 32,265 33,702 Public administration and mandatory social security 93,211 93,637 96,120 104,565 111,350 111,027 105,566 105,977 Education 81,028 83,212 90,742 100,238 100,752 93,896 8,925 97,152 Health and social protection 164,235 165,002 178,192 164,812 169,413 175,978 156,892 158,930 Art, entertainment and recreation 23,318 18,806 24,231 30,803 36,064 32,362 31,324 29,915 Other service activities 36,245 32,520 38,565 38,274 46,854 48,444 53,431 48,025 Household activities as an employer / / 1,166 1,362 1,491 2,151 2,185 3,049 Gross value added (GVA) 1,912,735 1,876,382 1,923,646 2,000,511 2,171,702 2,276,854 2,379,219 2,506,273 Taxes on products 147,686 261,878 354,700 371,379 418,854 450,830 480,273 515,771 Subsidies on products 26,730 30,953 30,271 28,764 34,246 33,173 34,284 32,793 Gross domestic products (GDP) 1,989,784 2,089,128 2,237,786 2,336,593 2,547,973 2,689,142 2,821,027 2,987,150 2008 2009 2010 2011 2012 2013 2014 Agriculture, forestry and fishing 258,115 245,814 261,510 263,993 218,348 264,004 269,181 Mining 37,896 33,855 39,964 46,237 49,087 49,712 38,116 Manufacturing 439,706 419,839 418,466 426,237 458,870 484,882 474,874 Electricity, gas and steam supply 85,958 91,421 87,245 90,458 88,180 99,638 70,955 Water supply and waste water management 31,046 31,149 35,131 36,638 36,750 36,444 36,888 Construction 171,052 149,069 145,484 154,069 138,927 133,558 131,578 Wholesale and retail trade, repair of motor vehicles 327,182 298,331 289,462 290,567 292,955 297,416 299,518 Traffic and storage 134,762 128,540 137,687 137,323 126,694 136,261 140,031 Accomodation and food services 35,580 35,365 34,540 31,628 35,458 32,588 31,819 Information and communication 129,482 125,571 129,593 132,926 136,597 136,420 131,160 Financial and insurance activities 97,543 100,035 101,894 100,304 92,250 83,509 81,150 Real estate 282,176 283,885 284,579 285,981 288,791 291,778 287,948 Professional, scientific, innovation and technical activities 102,704 91,859 89,343 92,882 95,942 94,535 95,733 Administrative and support service activities 38,973 41,775 44,350 43,507 45,773 43,814 43,803 Public administration and mandatory social security 106,881 111,454 111,198 112,532 117,736 120,492 118,847 Education 102,826 104,851 105,363 106,982 108,776 110,275 111,204 Health and social protection 164,889 166,001 164,644 169,502 169,618 169,977 171,120 Art, entertainment and recreation 30,527 29,824 30,113 27,906 30,130 29,530 29,897 Other service activities 48,722 46,103 44,108 42,578 41,058 39,195 40,243 Household activities as an employer 3,023 2,670 2,692 2,532 2,517 2,531 2,724 Gross value added (GVA) 2,627,770 2,537,137 2,557,364 2,594,783 2,574,024 2,658,472 2,604,582 Taxes on products 554,878 544,112 543,004 549,024 531,759 530,515 526,543 Subsidies on products 34,235 31,869 33,158 33,611 27,497 32,727 32,790 Gross domestic products (GDP) 3,147,461 3,049,387 3,067,210 3,110,196 3,078,619 3,157,793 3,099,964 Source: Statistical office of the Republic of Serbia (2005 -2016). Statistical Yearbook. Intersectoral Linkages and their Contribution to Economic Growth in the Republic of Serbia 205 Table 4 Gross domestic product per economic sectors in Serbia, in the period 2000-2014 (constant price 2010, mil. RSD) Year Gross domestic product Agriculture Manufacturing Service sector Mil. RSD % of total GDP Mil. RSD % of total GDP Mil. RSD % of total GDP 2000 1,944,993.2 223,896.7 12% 631,862.1 32% 1,089,234.4 56% 2001 1,872,481.1 262,559.7 14% 573,432.7 31% 1,036,488.7 55% 2002 1,933,596.9 244,600.1 13% 579,622.9 30% 1,109,373.9 57% 2003 2,010,427.1 227,687.6 11% 621,582.8 31% 1,161,156.7 58% 2004 2,176,180.5 271,092.8 12% 656,466.0 30% 1,248,621.7 57% 2005 2,284,289.5 257,961.1 11% 658,934.8 29% 1,367,393.6 60% 2006 2,379,372.7 257,784.0 11% 693,804.0 29% 1,427,784.7 60% 2007 2,506,045.2 237,455.2 9% 733,332.8 29% 1,535,257.2 61% 2008 2,629,041.7 258,115.2 10% 765,657.3 29% 1,605,269.2 61% 2009 2,537,409.2 245,813.6 10% 725,332.8 29% 1,566,262.8 62% 2010 2,557,364.2 261,510.4 10% 726,288.7 28% 1,569,565.1 61% 2011 2,594,782.3 263,993.0 10% 753,640.3 29% 1,577,149.0 61% 2012 2,574,454.6 218,348.1 8% 771,813.4 30% 1,584,293.1 62% 2013 2,656,558.9 264,003.6 10% 804,233.8 30% 1,588,321.5 60% 2014 2,604,582.4 269,181.0 10% 752,411.0 29% 1,585,197.0 61% Source: Statistical office of the Republic of Serbia (2005-2016). Statistical Yearbook. Based on the previous table, the tertiary sector has increased its relative importance over years measured by its share in GDP, from 56% in 2000 to 61-62% at the end of analyzed period. The primary sector achieved the biggest share in GDP in 2001 (14%) and the smallest in 2012 (8%), while secondary sector showed very small fluctuations in the share of GDP from 32% in 2000 to 28% in 2010. 3.2. The share of economic sectors in the overall employment of the Republic of Serbia In the last two centuries, drastic changes have been occurring in employment and productivity between the economic sectors. History has shown that economies changed from predominantly agricultural, via manufacturing, to service-focused economies. The economic development of industrialized countries has led to the transformation of society. In countries striving for industrialization, agriculture has served as a source of resources that can be invested in economic development activities. Among other things, gradually there was a migration of the agricultural population to manufacturing and service sector, and then at a higher level of development from manufacturing into the service sector. Table 5 shows the movement of overall employment in Serbia in the period from 2002 to 2014, as well as in all economic activities (agriculture, manufacturing, and service activities). The number of employees in Serbia is in constant decline, from 1.6 million in 2002 to 1.3 million in 2014. Observed by sectors in the analyzed period, the employees in agriculture registered a decline in the share of total employment in Serbia from 4.82% to 2.36%. The relative share of manufacturing in Serbian total employment also drops, from 44.13% in 2002 to 32.23% in 2014. Unlike the primary and secondary sectors, 206 J. STANOJEVIĆ, B. KRSTIĆ the participation of the tertiary sector in the overall employment of Serbia increased in the observed period from 52.29% to 65.41%, thus representing a dominant share. Тable 5 Employees per sector in Serbia, in the period 2002-2014 Year Number of employees Agriculture Manufacturing Service sector Absolute Relative Absolute Relative Absolute Relative 2002 1,676,835 80,888 4.82% 739,932 44.13% 856,044 51.05% 2003 1,611,632 74,445 4.62% 694,420 43.09% 842,771 52.29% 2004 1,580,140 70,073 4.43% 650,518 41.17% 859,555 54.40% 2005 1,546,471 65,058 4.21% 624,120 40.36% 857,295 55.44% 2006 1,471,750 59,395 4.04% 578,809 39.33% 833,548 56.64% 2007 1,432,851 55,145 3.85% 543,154 37.91% 834,555 58.24% 2008 1,428,457 49,528 3.47% 522,026 36.54% 856,905 59.99% 2009 1,396,792 46,129 3.30% 486,468 34.83% 864,198 61.87% 2010 1,354,637 37,392 2.76% 459,006 33.88% 858,242 63.36% 2011 1,342,892 34,815 2.59% 449,963 33.51% 858,113 63.90% 2012 1,341,114 33,002 2.46% 443,726 33.09% 864,385 64.45% 2013 1,338,082 33,715 2.44% 438,990 32.81% 866,378 64.75% 2014  1,323,831 31,288 2.36% 426,670 32.23% 865,871 65.41% Source: Statistical office of the Republic of Serbia (2005-2016). Statistical Yearbook. According to the data of the Statistical Office of the RS, employment in Serbia in 2015 amounted to 2.574.200, being higher for 0.6% compared to the previous year. However, registered employment in 2016 amounted to 2.009.784 (Statistical office of the Republic of Serbia, 2017). Conducted analysis indicates that structural changes in the Serbian economy have contributed to the reduction of agricultural and manufacturing relative importance and increased relative importance of the service sector, measured by their participation in gross domestic product and overall employment. Salaries of employees in Serbia at the economy and sector level recorded slight fluctuations in their nominal and real values in the previous period. In 2015, the average earnings of employees in Serbia registered a nominal decline of 0.5% and a real fall of 2.4%. However, "the highest increase in wages was recorded in the following sectors: other service activities (nominal growth of 10.1% and real 8.0%), arts, entertainment and recreation (nominal growth of 8.4% and real growth of 6.4 %) and health and social protection (nominal growth of 6.4% and real growth of 4.4%). On the other hand, the largest negative changes were identified in the sectors: agriculture, forestry and fisheries (nominal decline of 10.2% and real growth of 11.9%), mining (nominal decrease of 7.1% and real growth of 8.8% ) and manufacturing (nominal decline of 6.8% and real of 8.5%)" (Statistical Office of the RS, 2016, pp. 57-58).  A new methodology for monitoring registered employment of Serbia is being applied since 2015, combining data from the two official statistical sources. The new definition of registered employment is in line with the standards of the European Union. Also, the methodology of the Labour Force Survey was changed in 2015. The system of grading, increased sample size, continuous research and new method of data collection - CAPI (Computer Assisted Personal Interviewing) have been changed. Accordingly, taking into account the changes in the methodology, the data from 2015 are not included in the analysis. Intersectoral Linkages and their Contribution to Economic Growth in the Republic of Serbia 207 The average gross and net salaries in Serbia in the period from 2003 to 2015 are given in Table 6 and Table 7. Тable 6 Average gross salaries in Serbia, per occupation, 2003-2015 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Republic of Serbia, total 16,612 20,555 25,140 31,745 38,744 45,674 44,147 47,450 52,733 57,430 60,708 61,426 61,145 Agriculture, forestry and water management 13,129 15,569 20,301 25,951 29,680 37,204 38,421 38,304 43,857 49,948 51,916 51,522 52,435 Agriculture, hunting and services 12,217 14,026 18,195 23,297 26,256 33,615 35,449 36,603 42,703 48,882 50,635 49,712 51,737 Forestry 17,506 23,883 28,790 35,500 41,773 46,854 45,593 47,952 50,969 55,402 58,505 59,253 57,528 Water management 20,479 26,050 34,020 42,238 48,655 55,946 53,683 / / / / / / Fishing 15,378 17,840 24,085 23,724 21,699 29,113 27,147 32,818 34,506 44,102 44,107 48,289 38,819 Mining and quarrying 22,091 26,352 30,745 38,992 48,978 55,835 61,226 69,582 80,605 89,521 96,051 97,900 99,521 Manufacturing 12,996 16,065 20,366 25,830 30,620 36,540 35,166 40,101 45,269 49,236 51,742 53,094 56,471 Production of electricity, gas and water 23,778 29,426 35,590 42,488 53,128 57,886 62,227 61,000 69,909 75,934 79,231 73,156 79,850 Construction 15,175 18,443 22,389 28,219 34,944 42,271 37,897 40,985 45,796 48,159 49,492 51,778 57,023 Wholesale and retail trade, repair 13,704 17,444 22,621 28,926 34,685 42,367 32,746 35,560 39,010 42,598 45,677 45,801 46,969 Hotels and restaurants 11,689 14,037 17,665 21,516 25,844 30,234 24,895 25,851 28,588 31,303 33,044 33,620 36,449 Traffic, storage and connection 20,113 24,561 29,737 36,029 41,568 48,758 51,350 58,090 65,185 72,086 77,563 83,897 86,839 Financial intermediation 34,601 43,870 56,348 70,864 82,041 91,023 94,568 96,920 99,978 105,414 109,47 0 105,479 107,340 Real estate, renting 20,251 24,730 32,076 37,039 47,154 52,116 46,840 51,326 56,246 61,378 65,571 66,981 68,079 Public administration and social security 22,742 27,207 33,210 40,542 47,728 54,273 55,363 58,330 65,427 71,200 75,098 74,738 67,151 Education 18,243 21,688 27,265 33,166 40,286 48,299 49,958 50,141 53,273 56,906 59,573 59,961 55,860 Health and social work 18,817 23,064 26,792 32,790 42,900 48,864 50,444 50,503 54,691 57,803 60,569 60,359 56,307 Other communal and social services 19,707 24,191 28,846 33,866 38,641 44,281 42,267 41,807 42,846 47,258 50,637 43,371 45,899 Source: Statistical office of the Republic of Serbia (2005-2016). Statistical Yearbook. Based on Table 6, gross salaries in agriculture in 2003 amounted only to 76% of the average gross salaries in Serbia. With mild oscillations in other analyzed years, in 2014 they make up 85% of average gross salaries in Serbia. Within the primary sector, the lowest gross salaries are recorded in the activities of agriculture, hunting and services, which are at the same time the lowest or one of the lowest gross salaries in comparison to all other activities in Serbia. The largest gross salaries in the whole observed period were recorded within the financial intermediation, which are almost twice than average for Serbia. Observed by sectors, both secondary and tertiary sectors on average achieve higher gross salaries than the national average. However, at the beginning of the analyzed period (2003), the tertiary sector recorded gross salaries for 20% higher than the national average, and the secondary 11%. At the end of the analyzed period, in 2015, a larger difference compared to the national average is recorded in the secondary sector (20%), and smaller in the tertiary (4%). 208 J. STANOJEVIĆ, B. KRSTIĆ Тable 7 Average gross salaries in Serbia, per occupation, 2003-2015 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Republic of Serbia, total 11,500 14,108 17,443 21,707 27,759 32,746 31,733 34,142 37,976 41,377 43,932 44,530 44,432 Agriculture, forestry and water management 9,076 10,658 13,835 17,683 21,244 26,696 27,582 27,591 31,545 35,970 37,404 37,212 37,908 Agriculture, hunting and services 8,437 9,592 12,396 15,875 18,823 24,179 25,497 26,380 30,733 35,238 36,491 35,934 37,398 Forestry 12,162 16,400 19,619 24,189 29,823 33,488 32,627 34,000 36,558 39,734 42,073 42,653 41,596 Water management 14,177 17,907 23,243 28,778 34,616 39,809 38,275 / / / / / / Fishing 10,659 12,214 16,341 16,137 15,592 20,921 19,569 23,692 24,944 31,838 31,990 35,016 28,145 Mining and quarrying 15,373 18,113 20,989 26,739 34,818 39,729 43,650 49,630 57,436 63,726 68,338 69,660 71,077 Manufacturing 8,990 11,034 13,945 17,710 22,066 26,391 25,539 29,057 32,785 35,748 37,706 38,735 41,148 Production of electricity, gas and water 16,486 20,186 24,369 28,994 37,867 41,222 44,239 43,500 49,893 54,176 64,554 57,873 57,133 Construction 10,472 12,597 15,235 19,195 24,869 30,178 27,175 29,459 32,950 34,713 35,747 37,493 41,744 Wholesale and retail trade, repair 9,474 11,953 15,498 19,863 24,934 30,561 23,757 25,830 28,475 31,078 33,614 33,827 34,606 Hotels and restaurants 7,991 9,498 12,000 14,678 18,614 21,800 18,176 18,899 20,902 22,832 24,362 24,885 26,781 Traffic, storage and connection 13,911 16,854 20,341 24,724 29,821 35,046 36,880 41,676 46,878 51,696 56,674 62,250 64,714 Financial intermediation 24,157 30,347 38,852 48,896 58,951 65,419 67,899 70,045 71,938 76,195 79,168 76,432 77,840 Real estate, renting 14,052 17,028 22,007 25,387 33,888 37,531 33,851 37,041 40,581 44,395 47,675 48,768 50,796 Public administration and social security 15,767 18,673 22,633 27,630 34,055 38,730 39,494 41,675 46,728 50,824 53,826 53,413 48,161 Education 12,574 14,826 18,550 22,583 28,781 34,451 35,666 35,867 38,152 40,764 42,757 43,031 40,217 Health and social work 13,063 15,868 18,328 22,334 30,654 34,878 36,030 36,149 39,220 41,456 43,620 43,445 40,649 Other communal and social services 13,635 16,616 19,693 23,099 27,648 31,674 30,335 30,127 31,749 34,184 44,173 36,990 35,866 Source: Statistical office of the Republic of Serbia (2005 -2016). Statistical Yearbook. On the other hand, Table 7 shows net earnings in all activities in Serbia. The ratio of net salaries is the same as for gross salaries. Therefore, in agriculture only around 80% of average net salaries in Serbia are realized. They also represent the lowest earnings in relation to other activities. Both the secondary and tertiary sector as a whole realize their net earnings at the sector level above the national average. As with gross salaries, at the beginning of the analyzed period, the tertiary sector as a whole has higher average salaries compared to the secondary (20% compared to 11%), while this ratio changes at the end of the analyzed period in favor of the secondary (18% compared to 4%). Intersectoral Linkages and their Contribution to Economic Growth in the Republic of Serbia 209 3.3. The share of economic sectors in international trade of the Republic of Serbia Commercial liberalization, both at regional and global level, has created a global environment suitable for the growth and expansion of world trade. New technologies, such as computers, telecommunications and other media, have contributed to the integration of the world market. As the most traditional form of international business activity, international trade involves the exchange of goods and services across national borders. It allows businesses and distributors to search for goods, services, or parts of products in other countries. Foreign trade is an important indicator of economic development of the country and it brings many benefits to both exporting and importing countries. While exporting countries earn by exporting surplus of their products, importing countries have access to better products and thus affect the living standard of the population. The main determinants of exports are the presence of entrepreneurial spirit, access to marketing, transport and other services, exchange rate, but also the state trade policy and policies of the exchange rate. On the other hand, imports are mostly influenced by income per capita, prices of imports, exchange rate, public policies related to trade and exchange rate and availability of foreign currencies (Seyoum, 2009, pp. 9-10). There are numerous reasons in favor of international trade, such as cost efficiency, the use of advanced technology, new production methods, specialization, improvement of living standards, etc. International trade also allows businesses to access resources that are not available in their countries. However, in addition to providing consumers with a wide range of different products, international trade increases revenue and employment. By encouraging the development of agriculture, manufacturing and service sectors, foreign trade offers greater employment opportunities in these sectors. Also, foreign trade stimulates market competition and thus leads to the improvement of production technology, production process and product quality. The ultimate benefit is realized by consumers who receive quality and varied products at affordable prices. Tables 8 and 9 show the values of Serbian exports and imports in millions of dinars for the period from 2003 to 2015. Therefore, based on the values from the tables, the absolute value of Serbian exports and imports in the observed period is growing both in total and by sectors. In the first half of the analyzed period (from 2003 to 2009), the value of imports is about twice higher than the value of exports, while in the second half of the analyzed period (from 2010 to 2015) the value of exports and imports is approximating. Within the primary sector, agriculture, hunting and services account for almost 95% of foreign trade, while the rest is farming, forestry and fisheries. In Table 10 relative values of exports and imports in the primary, secondary and tertiary sectors of Serbia are given. 210 J. STANOJEVIĆ, B. KRSTIĆ Intersectoral Linkages and their Contribution to Economic Growth in the Republic of Serbia 211 Тable 10 Share of agriculture, manufacturing and services in Serbian exports and imports, for the period 2003-2015 Year Agriculture Manufacturing Service sector Nonaligned Export Import Export Import Export Import Export Import 2003 2.55% 0.60% 60.33% 34.72% 24.35% 37.29% 12.77% 27.38% 2004 3.71% 2.73% 95.51% 96.60% 0.10% 0.01% 0.68% 0.66% 2005 4.57% 2.63% 95.04% 97.03% 0.19% 0.01% 0.21% 0.29% 2006 4.78% 2.49% 95.16% 97.39% 0.02% 0.01% 0.03% 0.11% 2007 4.05% 1.95% 95.91% 79.57% 0.01% 0.01% 0.03% 18.47% 2008 3.59% 2.08% 96.43% 44.43% 0.95% 0.01% 0.02% 20.48% 2009 6.44% 2.49% 92.46% 77.62% 0.07% 0.55% 0.03% 19.34% 2010 7.42% 3.01% 91.76% 90.51% 0.79% 0.75% 0.02% 5.73% 2011 8.00% 2.92% 91.27% 91.92% 0.71% 0.37% 0.02% 4.79% 2012 8.58% 3.05% 90.64% 90.07% 0.77% 0.36% 0.01% 6.52% 2013 5.92% 2.89% 93.83% 90.45% 0.48% 0.39% 0.01% 6.26% 2014 6.65% 3.07% 92.72% 89.52% 0.61% 0.36% 0.01% 7.05% 2015 7.07% 3.33% 92.36% 88.09% 0.56% 0.32% 0.01% 8.26% Source: Statistical office of the Republic of Serbia (2005-2016). Statistical Yearbook. The share of agriculture in the total export of Serbia increased from 2.55% in 2003 to 7.07% in 2015 (Table 10). Also, agriculture has slightly increased its share in total imports (3.33% in 2015 compared to 0.60% in 2003). Manufacturing is constantly registering a significant share in exports (on average 90%) and in imports (on average 85%) of Serbia. The service sector, on the other hand, has an extremely low share in total exports and imports throughout the analyzed period. With a relative share in exports and imports of around 1%, the tertiary sector has the least share in Serbian exports and imports compared to primary and secondary sectors. 4. CONCLUSION Structural changes can be considered as a result of a process in which economies, both national and global, but also sectors and regions, show their ability to survive in conditions of fierce competition and respond to new market challenges. Structural changes, above all, represent a change in the relative importance of the economic sectors over a certain period of time, measured by their participation in the national product and overall employment. There is a whole set of factors that lead to a change at different levels. Bearing this in mind, there is no single and unique factor that causes structural changes, but they are most often the result of a combination of determinants. In the long term, structural changes show a strong correlation with changes in the competitiveness of the economy and therefore its development, as well as changes in economic results at the micro and macro level. There is a constant process of economic restructuring as a result of technological and social changes, combined with competitive and comparative advantages, constantly changing the sectoral and spatial dynamics of economic activity in the global economy. The rapid economic development, in general, is driven by structural changes in the economy, as well as structural changes in its 212 J. STANOJEVIĆ, B. KRSTIĆ various sectors. These fundamental changes are characterized by shifting resources from primary production, such as agriculture and mining, to manufacturing, and within manufacturing from those based on natural resources to those more sophisticated, more intense in terms of skills and technology, and further towards the tertiary sector. Intersectoral structural changes in Serbia were examined in the paper on this base. As of the sector’s share in the gross domestic product, the tertiary sector accounts for about 60% of GDP in the analyzed period, followed by a secondary sector with around 30% and a primary sector that records the share of around 10%. When it comes to the share of sectors in the overall employment in Serbia, the conducted analysis shows that the dominant share in the total employment has a tertiary sector with over 60%, followed by a secondary sector with over 30% and a primary sector that participates with less than 5% in overall employment. Therefore, it can be concluded based on the results that the tertiary sector has the biggest contribution to the economic growth of Serbia, then secondary sector and the least contribution has the primary sector. However, the share of sectors in the exports and import values indicates slightly different results. Namely, almost all exports and imports in Serbia relate to the secondary sector which participates with about 90%. The primary sector accounts for less than 10% in exports and imports, and the tertiary sector records a negligible share in exports and imports of around 1%. Acknowledgement: The paper is a part of the research done within the project 179066, funded by the Ministry of Education, Science and Technological Development of the Republic of Serbia. REFERENCES Adelman, I. (1999). Fallacies in Development Theory and Their Implications for Policy. In M. &. Stiglitz, Frontiers of development economics: The future in perspective (pp. 103-134). New York: World Bank. Ark, V. (1995). Sectoral Growth Accounting and Structural Change in Postwar Europe. Groningen Growth and Development Centre, University of Groningen. Dietrich, A. (2009). Does Growth Cause Structural Change, or Is it the Other Way Round? A Dynamic Panel Data Analyses for Seven OECD Countries. Jena: Jena Economic Research Papers. Downes, P. & Stoeckel, A. (2006). Drivers of Structural Change in the Australian Economy. Sydney: Centre for International Economics – Canberra & Sydney. Frane, A. (2014). Measuring National Innovation Performance. Springer Briefs in Economics. Hayami, Y. & Godo, Y. (2005). Development Economics: From the Poverty to the Wealth of Nations. Oxford: Oxford University Press. Johnston, W. (1990). Structural Change and the Recognition of Diversity. American Journal of Agricultural Economics, 72, 1109-1123. Kenneth, D., Caroline, J. & Lynk, E.L. (1992). Industrial Organization: Competition, Growth and Structural Change. London: Routledge. Крстић, Б., Станојевић, Ј., Станишић, Т. (2015). Глобализација и њене импликације као једног од најзначајнијих фактора структурних промена Globalization and its implications as one of the most important drivers of structural changes. Друштвени и технолошки развој у ери глобализације - СЕРДА 2015 (стр. 31-44). Бијељина: Слобомир П Универзитет. Memedovic, O. & Lapadre, L. (2010). Structural Change in the World Economy: Main Features and Trends. Vienna: United Nations Industrial Development. Mankiw, G. (2002). Principles of Economics. South-Western Cengage Learning. Mankiw, G. (2001). Principles of Macroeconomics. South-Western Cengage Learning. Raiser, M. Schaffer, M. & Schuchhardt, J. (2003). Benchmarking structural change in transition. European Bank for Reconstruction and Development. Quatraro, F. (2012). The Economics of Structural Change in Knowledge. Valbonne: Routledge. Intersectoral Linkages and their Contribution to Economic Growth in the Republic of Serbia 213 Seyoum, B. (2009). Export-Import Theory, Practices, and Procedures. London: Routledge. Statistical Office of the Republic of Serbia. (2018). Retrieved: www.stat.gov.rs. Statistical Office of the Republic of Serbia. (2005-2016). The Statistical Yearbook WEF. (2016-2017). Global Competitiveness Report. Geneva: World Economic Forum. MEĐUSEKTORSKE VEZE I NJIHOV DOPRINOS EKONOMSKOM RASTU U REPUBLICI SRBIJI Visok nivo međusobne povezanosti privrednih sektora, odnosno agrarnog, industrijskog i sektora usluga, ukazuje na potrebu razumevanja međusektorskih strukturnih promena i transfera resursa između sektora, a u cilju sagledavanja njihovog doprinosa ekonomskom razvoju. Međusektorske strukturne promene Republike Srbije, kao jedne od tranzicionih privreda, analiziraju se sa različitih aspekata na osnovu bogate informacione osnove koju čine podaci iz domaćih i međunarodnih statističkih izvora. U radu se, pre svega, sagledava učešće privrednih sektora u bruto domaćem proizvodu. Zatim se ukazuje na udeo privrednih sektora u ukupnoj zaposlenosti, ali i u međunarodnoj trgovini. Cilj istraživanja jeste da se analiziraju strukturne promene u privredi Republike Srbije, identifikuje pravac transfera resursa između sektora, kao i utvrdi njihov doprinos ekonomskom razvoju mereno različitim indikatorima. Ključne reči: međusektorske veze, strukturne promene, ekonomski rast, Republika Srbija.