An income elastic demand for services is usually regarded as one of th
e major explanations for the observed pattern of structural change in
the world economy. Recent empirical findings cast some doubt on this d
emand-bias hypothesis. This paper presents a simple model of structura
l change that allows an assessment of the implications of alternative
demand elasticities. The analysis focusses on restrictions for the set
of consistent parameter values derived from demand theory. The result
s show that lagging productivity growth in the service sector and a ho
mothetic or income inelastic demand for services do not suffice to exp
lain the stylized facts.