Structural Change and Generalized Balanced Growth

This paper addresses the criticism that balanced growth models are inconsistent with the dynamics of structural change characterizing the process of economic development. Using a sectoral disaggregated version of a research-driven growth model, we develop the concept of a generalized balanced growth path (GBGP). Along a GBGP, macroeconomic variables grow at constant rates while disaggregated variables grow at non-constant rates. As a result, balanced growth in macroeconomic aggregates and structural change can occur simultaneously.