Towards a More Complete Theory of Structural Transformation

This paper constructs a unified model on how population growth, technological progress and capital deepening induce structural transformation. We solve analytically the closed -form solution for the model to unearth the mechanisms and crucial assumptions underlying how these factors interact and foster structural transformation. When agricultural productivity growth is fast enough to outweigh the relative price effects contributed by non-agricultural productivity growth, population growth and capital deepening, production factors will move out of agriculture. We clarify the condition to sustain growth in asymptotic growth path. We found empirical validity of the model with sectoral data from the United States in 1970-2020.