We develop a two sector growth model where consumption decisions are driven by non-homothetic preferences and a labor mobility cost. This cost is paid by the workers when they move to another sector and, therefore, it limits structural change. The two sectors are the agriculture and non-agriculture sectors. We show that this model can explain the following patterns of development: (i) balanced growth of the aggregate variables; (ii) the change in the sectoral employment shares; (iii) the change

more »

... in the sectoral composition of GDP; (iv) convergence of the wages in the two sectors. We outline that the last two patterns can only be explained if we introduce a labor mobility cost. We also show that this cost generates a misallocation of production factors, implying a loss of GDP. We calibrate the model and we quantify that this loss amounts one quarter of the GDP in the initials periods. During the transition, the loss of GDP due to the misallocation decreases and eventually vanishes. Therefore, the elimination of the misallocation explains part of the increase in the GDP. JEL classi...cation codes: O41, O47.