Models of structural change in general equilibrium are commonly used to
address a number of questions regarding the behaviour of the
macro-economy. In this paper, we first revise the main mechanisms at
work in generating structural change in a multi-sector environment.
These effects emerge due to both an interaction between consumers'
preferences and technological change and to different income
elasticities of the various goods and services entering the utility
function. Next, we address the issue of measurement of these models when
comparing them to the data. The typical assumption in multi-sector
models is to define GDP as aggregate output in units of a numeraire
good, often chosen to be the investment good. However, this procedure is
equivalent to deriving nominal GDP in the data (i.e. total output of the
economy in units of one particular good), and not to deriving a measure
of real GDP. We then discuss how GDP in the model should be measured to
provide a statistic that is comparable with the data in national
accounts. The last part of the paper is devoted to show how structural
transformation from manufacturing to services, when appropriately
compared to the data, generates a decline in GDP growth and volatility
along the growth path of an economy.
JEL Classification: C67, C68, E25, E32
Keywords: Structural Change, Growth, Volatility