Page - (000021) - in Disrupted Development and the Future of Inequality in the Age of Automation

11 Abstract Technological change affects the sectoral composition of an economy. But, (why) do economic sectors matter? We revisit three schools of theory on economic development: the “classical,” the neo-Schumpeterian and the neoclassical school. While the latter two camps are agnostic toward the role of economic sectors in development, the first places a special emphasis on sectoral—particularly, manufactur- ing—development as an engine of growth. In the tradition of W. Arthur Lewis and Nicholas Kaldor among others, development is thus envisaged as “structural transformation” of production and employment. We show that the classical view, and its more recent iterations, continues to find empirical support in its lasting explanatory power. Keywords Development theory · Structural transformation · Economic sectors · Neoclassical theory · Schumpeter · Lewis model 2.1 three schools of economic development theory Palma (2005) usefully outlines three schools broad schools of theory on economic development, in terms of how each views sector and activ- ity specificity (and includes caveats for oversimplicity). There are two schools—neoclassical and neo-Schumpeterian—which are, in general, based on the assumption that an equilibrating process due to marginal CHAPTER 2 Economic Development and Structural Transformation © The Author(s) 2020 L. Schlogl and A. Sumner, Disrupted Development and the Future of Inequality in the Age of Automation, Rethinking International Development series, https://doi.org/10.1007/978-3-030-30131-6_2