COSTLY STRUCTURAL-CHANGE AND OPTIMAL-GROWTH

This paper studies the optimal growth of a developing economy that has a choice to expend a fixed amount of resource for a structural change that advances its production technology. It is shown that structural change is undertaken if capital stock is above a critical level. Econo mies undertaking structural change converge to a larger steady state a nd economies not undertaking structural change converge to a smaller s teady state. The optimal policy correspondences and growth paths are c haracterized. The social optimum is shown implementable by a competiti ve equilibrium with lump-sum taxation.