Demand-based structural change and balanced economic growth  Jaime Alonso-Carrera Departamento de Fundamentos del AnÆlisis Econmico and RGEA Universidade de Vigo Xavier Raurich Departament de Teoria Econmica and CREB Universitat de Barcelona February 13, 2015 Abstract We analyze the equilibrium of a multi-sector exogenous growth model where the introduction of minimum consumption requirements drives structural change. We show that equilibrium dynamics simultaneously exhibit structural change and balanced growth of aggregate variables as is observed in US when the initial inten- sity of minimum consumption requirements is su¢ciently small. This intensity is measured by the ratio between the aggregate value of the minimum consumption requirements and GDP and, therefore, it is inversely related with the level of eco- nomic development. Initially rich economies benet from an initially low intensity of the minimum consumption requirements and, as a consequence, these economies end up exhibiting balanced growth of aggregate variables, while there is structural change. In contrast, initially poor economies su/er from an initially large inten- sity of the minimum consumption requirements, which makes the growth of the aggregate variables unbalanced during a very large period. These economies may never exhibit simultaneously balanced growth of aggregate variables and structural change. JEL classication codes: O41, O47. Keywords: structural change, non-homothetic preferences, balanced growth, speed of convergence.  Financial support from the Spanish Ministry of Education and Science and FEDER through grants ECO2012-34046 and ECO2011-23959; the Generalitat of Catalonia through grant SGR2009-1051. The paper has benet from comments by participants in Asset conference in Cyprus, LAGV conference in Aix-Marseille, PET comference in Lisbon, and seminars in University of Barcelona, Tor Vergata (Rome) and University of Groningen. We thank Jordi CaballØ, Antonio Manresa, Daniel Miles and Petros Milionis for their useful comments. Corresponding Author: Jaime Alonso-Carrera. Universidade de Vigo. Facultad de Ciencias Econmicas y Empresariales. Campus As Lagoas-Marcosende. 36310 Vigo. Spain. E-mail: jalonso@uvigoes