Eurasian Economic Review

, Volume 3, Issue 1, pp 8–38 | Cite as

Supply Side Structural Change



The interest rate and the rate of economic growth are often regarded as roughly constant as economies grow. Moreover, the share of agriculture in production and the share of rural population typically shrink. We show that an otherwise standard growth model that includes a backward and an advanced sector can account for these regularities. The mechanism works as follows: as the economy accumulates capital, labor flows from the backward sector to the advanced one. This migration prevents the usual diminishing marginal returns of capital. As a result, the interest rate and the growth rate of the economy remain constant during the transition to the steady state.


Growth Structural Change Urbanization Choice of Techniques Productivity Slowdown 

JEL Classification

O14 O15 O18 O41 O47 


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Copyright information

© Eurasia Business and Economics Society 2013

Authors and Affiliations

  1. 1.Department of EconomicsIowa State UniversityUSA

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