Economic transformation from a predominantly agrarian and rural economy to an industrialized and urban
one is considered a cornerstone of economic development (Matsuyama (2008), Syrquin (1988), Chenery
(1960), Kuznets (1966), Clark (1957)). The classic literature on structural change focused on the long-run
evolution of sectoral shares of agriculture, manufacturing and services in employment and output.2 Recent
studies on structural change in developing countries provide robust evidence that labor productivity in nonagriculture
is significantly higher than in agriculture. Macmillan and Rodrik (2011) report that productivity
ratio between manufacture and agriculture is on average 2.3 in Africa, 2.8 in Latin America and 3.9 in Asia.
Such large productivity gaps imply that a structural change in favor of non-farm activities (manufacturing
and services) may be desirable for both efficiency and poverty alleviation (Macmillan and Rodrik, 2011;
Gollin, Lagakos and Waugh, 2014; Vollrath, 2009)