This paper reviews existing structural transformation models and prominent literatures
and then empirically examines Nepalese economic structure. The research findings
reveal that industrial sector is significant to increase per capita income compared to the
agriculture and services sectors in Nepal. Moreover, health as indicated by life
expectancy and population at working age are found to be significant to increase the
income but, education and capital formation are found inconsistent with the theory and
international empirics. Likewise, developing agricultural sector looks prerequisite for
high and sustainable growth however efforts should be made in increasing investment
significantly for the mechanization and modernization of agriculture. Developing
infrastructures and fostering favorable business environment are other pre-requisites to
support growth. In addition, employment-led service sector development is must with
more emphasis on the tourism and human capital development.