Relationship Between Structural Change And Economic Growth

Structural change is at the centre of modern economic growth. This insight has been readily argued in the early literature of economic development. Virtually all the developing economies that have transformed themselves from low to middle and upper-income status have undergone profound changes in their economic structures (Chenery 1986). Many writers, for example, Kuznets emphasize the necessity of structural change for growth as
“…structural changes, not only in economic but also in social institutions and beliefs, are required, without which modern economic growth would be impossible.” (p.348 Kuznets 1971)
The interdependence between Structural change (thereafter, SC) and economic growth was further regarded by Syrquin as
“…economic development

al (2011, 2014) labour productivity growth in an economy can be achieved in one of two ways. First, productivity can grow within economic sectors through capital accumulation, technological change, or reduction of misallocation across plants. Second, labour can move across sectors, from low-productivity sectors to high-productivity sectors, increasing overall labour productivity in the economy. They express this by using the following decomposition:
∆Y_t=∑_(i=n)▒〖∆y_i 〖(N_i⁄N)〗_(t=0)+∑_(i=n)▒〖∆(N_i⁄N)y_(i,t=1) 〗〗 (1) where, Y_t and y_(i,t) are the economy-wide and sectoral labour productivity levels, respectively and N_i⁄N is the employment share of sector i. The first term in the decomposition represents the “within” component of productivity growth. The second term “between” component captures the direct contribution of structural change to productivity growth.
However, I modify equation (1) to be able to reflect growth rates in an economy by dividing the whole equation by labour productivity at t-1 Therefore,
(∆Y_t)/Y_(t-1) =∑_(i=n)▒〖(∆y_(i,t) 〖(N_i⁄N)〗_(t-1))/Y_(t-1) +∑_(i=n)▒(∆(N_i⁄N)y_(i,t))/Y_(t-1) 〗