This paper studies the productivity improvement in economies experiencing rapid structural transformation, i.e. resource reallocation from a low to a high productivity sector. In particular, it measures the productivity growth that is attributed to reallocating labor from the farm to the non-farm sector in Taiwan between 1951 and 2003. Examining productivity under a two-sector rather than a one-sector framework reduces the measured productivity growth by 28% in terms of total factor productivity. In other words, the results show that resource reallocation, especially that of labor, from a low to a high productivity sector plays a substantial role in accounting for the significant productivity improvement in an economy experiencing rapid structural transformation.