Chapter 8
Economic Growth and Economic
Structure since 1750
The previous chapter placed inequality into an international perspective and
showed how average incomes between countries are affected by centuries of
even small differences in economic growth. This chapter looks at one aspect of
what growth does within the domestic economy. We have seen in earlier chap-
ters how economic growth may impact on measures of health, education, nutri-
tion and happiness. This chapter confines the discussion to the economic, in
particular economic structure.
Economic growth has a systematic impact, not just on average living stan-
dards, but also on inequality and the relative contributions of agriculture, manu-
facturing and services to both employment and total GDP. Some economists
(known as structuralists) have argued that economic structure is not simply
something that changes in response to economic growth but is itself a key deter-
minant of growth. Structuralists believe that industry has the advantage over
agriculture for sustaining rapid long-term economic growth. Developing-coun-
try governments generally have a very disappointing record of successfully
promoting industrialization as part of a strategy to promote rapid economic
growth. Nevertheless, it has been characteristic of the most successful stories of
growth in the twentieth century, such as South Korea and more recently China.
Conceptualizing structural change:the Lewis model and inequality
There are two broad and influential ways of conceptualizing structural change:
the transition from the traditional to the modern most famously encapsulated
by the Lewis model; and the relation between growth and inequality, likened to
an inverted U by Simon Kuznets.
From the traditional to the modern: the Lewis model
Arthur Lewis’s ‘Economic Development with Unlimited Supplies of Labour’
(1954) is regarded by many as the founding document of development econom-
ics. Much subsequent work has been an extension, qualification and criticism of
this original paper (Findlay 1980:64). Lewis argued that traditional economic
theory’s concern with the efficient allocation of a given quantity of resources
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