Based on the empirical evidence of long-run transformation of a large number of countries, Simon Kuznets synthesised the broad patterns of economic growth. Extending the analysis of shifts in workforce from primary to secondary to tertiary sector, Kuznets also relates the employment shifts in the shares of contribution to national income. The resulting relationship between growth and structural transformation is captured well by distinguishing the three stages of transformation as follows:

Stage 1: Primary Production: The first stage of the transformation is identified by the predominance of primary activities – especially agriculture – which provides the main source of input for the output of other two sectors viz. the secondary and the service sectors. This initial stage of transformation is typically characterised by slow growth in agriculture, low demand for manufacturing goods and slower overall growth rates.

Stage 2: Industrialisation: The second stage of transformation is characterised by the shift of the centre of gravity of the economy away from primary production towards manufacturing. The main indicator of this shift is the relative importance of the contribution of manufacturing to growth.

Stage 3: The Developed Economy: The transition from stage 2 to stage 3 takes place on several fronts. Income elasticities for manufacturing decline. Demand for services increase. Factor productivity growth spreads to all sectors without remaining confined to manufacturing. Services emerge as the largest contributor to both employment and national income. Agriculture turns out to be lowest in terms of labour share but labour productivity in agriculture increases to very high level. The wage gap between agriculture and other sectors starts closing.