Abstract Structural transformation refers to the reallocation of economic activity
across the broad sectors agriculture, manufacturing, and services. This review article
synthesizes and evaluates recent advances in the research on structural transformation.
We begin by presenting the stylized facts of structural transformation across time
and space. We then develop a multi-sector extension of the one-sector growth model
that encompasses the main existing theories of structural transformation. We argue
that this multi-sector model serves as a natural benchmark to study structural transformation
and that it is able to account for many salient features of structural transformation.
We also argue that this multi-sector model delivers new and sharper insights for understanding
economic development, regional income convergence, aggregate productivity trends,
hours worked, business cycles, wage inequality, and greenhouse gas emissions. We conclude
by suggesting several directions for future research on structural transformation.