Economic Development and Structural Transformation

Abstract

Technological change affects the sectoral composition of an economy. But, (why) do economic sectors matter? We revisit three schools of theory on economic development: the “classical,” the neo-Schumpeterian and the neoclassical school. While the latter two camps are agnostic toward the role of economic sectors in development, the first places a special emphasis on sectoral—particularly, manufacturing—development as an engine of growth. In the tradition of W. Arthur Lewis and Nicholas Kaldor among others, development is thus envisaged as “structural transformation” of production and employment. We show that the classical view, and its more recent iterations, continues to find empirical support in its lasting explanatory power.

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