Growth and Structural Transformation

April 2013
With Berthold Herrendorf and Akos Valentinyi; NBER Working Paper No. 18996

Structural transformation refers to the reallocation of economic activity across the broad sectors agriculture, manufacturing and services. This review article synthesizes and evaluates recent advances in the research on structural transformation. We begin by presenting the stylized facts of structural transformation across time and space. We then develop a multi–sector extension of the one–sector growth model that encompasses the main existing theories of structural transformation. We argue that this multi–sector model serves as a natural benchmark to study structural transformation and that it is able to account for many salient features of structural transformation. We also argue that this multi–sector model delivers new and sharper insights for understanding economic development, regional income convergence, aggregate productivity trends, hours worked, business cycles, and wage inequality. We conclude by suggesting several directions for future research on structural transformation.