Structural change and sustainable development

Abstract

In this paper, we show that the commonly observed decline in primary (natural resource using) sector output and employment shares, often termed structural change, can be explained as an endogenous response to the presence of nature's constraint. Structural change takes place even if consumer preferences are homothetic, and technological progress does not discriminate against the primary sector. Under certain conditions, structural change allows an open economy to grow with natural resource sustainability. Sustained and environmentally sustainable economic growth is possible even if the natural resource is exploited under open access. Well-defined property rights are neither necessary, nor sufficient for sustainable growth. We show that there is no unique relationship between natural resource endowment and the rate of economic growth over the long run. Resource-rich economies may grow faster or slower than resource-poor ones.