Technological improvements are generally conceived in economics as identical increases in productivity for all producers. Reality is more complicated-the diffusion of new technologies is generally associated with differential changes in the scale of production, with entry into promising new lines of activity, and in the exit of producers who cannot keep up with the technological pace and are forced out by deteriorating terms of trade. These are the economic processes that revolutionize the technological and social structure of the rural communities in the process of development. This paper outlines a few assumptions and findings of a theory of structural change associated with technological improvement and illustrates it with developments in the dairy and the poultry industries in Israel.