Industrialization experiences differ substantially across countries. We use a benchmark model of structural change to shed light on the sources of this heterogeneity and, in particular, the phenomenon of premature deindustrialization. Our analysis leads to three key findings. First, benchmark models of structural change robustly generate hump-shaped patterns for the evolution of the industrial sector. Second, heterogeneous patterns of catch-up in sectoral productivities across countries can generate variation in industrialization experiences similar to those found in the data, including premature deindustrialization. Third, differences in the rate of agricultural productivity growth across economies can account for the majority of the variation in peak industrial employment shares.

The structural-change literature typically assumes that investment is produced in manufacturing. We establish that this assumption is counterfactual: in the postwar U.S., the share of services value added in investment expenditure has been steadily growing. We develop a new model that features structural change in investment and consumption, characterize its equilibrium properties, and provide empirical support for it. We establish that modelling structural change in investment leads to three novel insights: constant TFP growth in all sectors is inconsistent with the existence of aggregate balanced growth with structural change; the sector with the slowest TFP growth absorbs all resources asymptotically; technical change is endogenously investment-biased.

Using a broad panel of advanced economies, we document that increases in GDP per capita are associated with a systematic shift in the composition of value added to sectors that are intensive in high-skill labour, a process we label as skill-biased structural change. It follows that further development in these economies leads to an increase in the relative demand for skilled labour. We develop a quantitative two-sector model of this process as a laboratory to assess the sources of the rise of the skill premium in the U.S. and a set of ten other advanced economies, over the period 1977 to 2005. For the U.S., we find that the sector-specific skill neutral component of technical change accounts for 18–24% of the overall increase of the skill premium due to technical change, and that the mechanism through which this component of technical change affects the skill premium is via skill-biased structural change.