Can Traditional Theories of Structural Change Fit the Data

Two traditional explanations for structural changes are sector-biased technological progress and non-homothetic preferences. This paper in-tegrates both into an otherwise standard growth model and quantita-tively evaluates them vis-a-vis time series. The exercise identi\u85es a set of puzzles for standard theories: (i) the model cannot account for the steep decline in manufacturing and rise in services in the later data; (ii) the standard model requires implausibly low elasticity of substi-tution across goods to match the consumption and output data; and (iii) the behavior of consumption and output shares di¤ers signi\u85cantly from that of employment shares. We argue that models that incorpo-rate home production, sector-speci\u85c factor distortions, and di¤erences across sectors in the accumulation of human capital are promising av-enues to amend the standard models