On Development Paths Minimizing the Structural Change Costs in the Three-Sector Framework and an Application to Structural Policy

Structural change is associated with high costs for the economy and the society ranging from environmental pollution to unemployment. We show that monotonous structural paths minimize the structural change costs in the three-sector framework (related to agriculture, manufacturing, and services), where we assume that the structural change costs increase with the strength of structural change. By using this result and the (qualitative) structural change ‘laws' based on the theoretical/empirical literature consensus, we derive the cost-minimizing development strategy for a developing country. We use these results to discuss some well-known structural/trade strategies and compare the historical structural change costs across countries