There is a growing interest in multi-sector models that combine aggregate balanced
growth, consistent with the well-known Kaldor facts, with systematic changes in
the relative importance of each sector, consistent with the Kuznets facts. Although
variations in the income elasticity of demand across goods played an
important role in the initial attempts, recent models stress the role of supplyside
factors in this process of structural change. Along these lines, Ngai and
Pissarides (American Economic Review, 2008) focus in differential productivity
growth across sectors while Acemoglu and Guerrieri (Journal of Political Economy,
2008) stress differences in factor proportions and capital deepening. We
explore a general framework that encompasses, as special cases, these two supplyside
mechanisms. Our model uncovers an additional driving force for structural
change based on differences in the degree of capital-labor substitutability. When
the flexibility to combine capital and labor varies across intermediate goods and
the final sector is Cobb-Douglas, as the economy grows the fraction of capital
(labor) allocated to the sector with high elasticity of substitution increases (decreases).
We provide some casual evidence consistent with this new mechanism.