Highlights• The data indicate that, along the development path, countries shift resources towards manufacturing industries that experience the most rapid productivity growth, but towards broad sectors that experience relatively slow productivity growth. • This is consistent patterns of structural transformation in a calibrated multi-industry growth model. • The "productivity mechanism" for structural transformation can thus account for the finding in the literature that along the development path countries start out specialized, become gradually more diversified and subsequently specialize again. AbstractEconomies diversify and then re-specialize as they develop. These "stages of diversification" may result from productivity-driven structural change if initially resources are concentrated in industries other than those that dominate economic structure in the long run. A calibrated multi-industry growth model with many countries and with industry differences in productivity growth rates replicates the main features of the "stages of diversification". We also present evidence that countries systematically shift resources towards manufacturing industries with rapid productivity growth, and towards sectors with low productivity growth, consistent with the model and supporting the "productivity mechanism" for structural transformation.

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We develop a model to evaluate the aggregate impact of college finance in an environment with entrepreneurship. The calibrated model captures the stylized fact that entrepreneurs with college are more common and more profitable in the United States. The calibration indicates this is mainly because higher labor earnings allow college‐educated agents to ameliorate credit constraints if and when they eventually become entrepreneurs. Changes in financing constraints on entrepreneurs can thus affect college attendance, and changes in financing constraints on college can affect entrepreneurship rates as well.