Abstract
Abstract
This study examines the relationship between diversification, structural transformation, and economic growth in peripheral rural economies. Although diversification is widely regarded as an important component of rural development, the mechanisms through which it contributes to growth remain unclear. Existing studies often rely on static measures that capture the level of transformation rather than the pace at which structural change occurs. To address this limitation, the study introduces Economic Transformation Velocity, defined as the rate of structural upgrading between two transformation states. The analysis uses longitudinal data collected from 80 household and business units in the mountain regions of Northern Albania between 2023 and 2025, representing 74.8 per cent of the study population. The empirical framework links diversification, investment and finance, economic transformation, transformation velocity, and growth. Composite indices are constructed using Principal Component Analysis, while the hypotheses are tested through robust OLS estimation, nonlinear models, threshold analysis, bootstrap resampling, and additional robustness checks. The results show that diversification is positively associated with economic transformation but has no significant direct relationship with economic growth. Economic Transformation Velocity is more strongly associated with growth, whereas the level of transformation remains statistically insignificant. Nonlinear and threshold analyses further indicate that the growth effect strengthens as transformation velocity increases, suggesting cumulative dynamics of structural upgrading. The study contributes to development economics by distinguishing between transformation levels and transformation dynamics and by introducing Economic Transformation Velocity as an indicator of structural change. The findings suggest that rural economic development depends not only on the degree of transformation achieved, but also on the speed at which structural upgrading takes place.