This chapter analyses economic development through the lens of a newly developed index: the structural modernization index. This index combines two dimensions that have been widely invoked as prime drivers of economic development namely, structural change and technological catch-up. For each country, the index calculates the productivity gap with respect to the world frontier in activities that typically represent the modern sector of the economy and weights this relative productivity by the employment share of those activities in the total labour force. The index is calculated for a sample of 115 countries over the period 1960–2014. It is used to explore the relationship between structural modernization and the ability to escape poverty and middle-income traps.
