India’s Atypical Structural Transformation

transformation. Structural transformation is the reallocation of economic activity across the broad sectors of agriculture, manufacturing, and services that accompanies the process of modern economic growth. Long-term evidence from developed countries indicates two stages of structural transformation: labor moves (i) out of agriculture into manufacturing and services and then (ii) out of both agriculture and manufacturing into services. Figure 1 shows the behavior of labor shares during the U.S. structural transformation over 1869 to 2008. The break from the first stage to the second stage occurred around 1970. This behavior is accompanied by changes in the shares of GDP: The agricul ture share steadily declined over the period. The manufacturing and services shares stayed relatively constant until the 1960s, but then manufacturing began to decline, while services continued to increase. India is a developing country currently undergoing a structural transformation. However, its path is somewhat different from that of a benchmark developed country.