Structural change and macro development: beyond the one-sector growth model

Abstract This paper offers an overview of new literature on the economics of structural change and development. Building on advances in heterogeneous agent macro models, recent research has revisited the economics of growth. Previously, the one-sector growth model provided the standard framework for thinking about differences in per capita GDP over time and across countries. While the one-sector growth model is a powerful framework for understanding these differences, it cannot, by construction, account for the many structural changes that accompany growth. To the extent that these structural changes may interact with the processes generating or limiting growth, the one-sector model may miss potential mechanisms through which growth may be increased or impeded. By incorporating structural change into our growth models—which is closely related to incorporating heterogeneity into macro models—we can arrive at a richer understanding of the growth process and a broader portfolio of policy tools and interventions that might matter for growth.