Complementarity and Transition to Modern Economic Growth
AbstractIn developing countries, the gradual transition to modern growth seems puzzling given the large productivity growth gap between traditional and modern sectors. We document this transition and develop a theory that resolves this puzzle. The key forces are sector-specific complementarity between work-experience and labor, and exogenous technical progress present only in the modern sector. Using nationally representative micro data from the Socio-Economic Survey of Thailand (1976-1996), we measure the theory by estimating cross-sectional earnings functions, and assess if the model jointly captures the observed transition dynamics of earnings growth and inequality. The model successfully explains the gradual transition, stagnation then take-off of aggregate earnings, and the rise and fall of experience-earnings profiles in Thailand.
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Bibliographic InfoPaper provided by Institute of Economic Policy Research (IEPR) in its series IEPR Working Papers with number 06.44.
Length: 39 pages
Date of creation: Feb 2006
Date of revision:
Sector-Specific Complementarity; Modern Economic Growth; TFP and Inequality;
Find related papers by JEL classification:
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
- O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-03-19 (All new papers)
- NEP-DEV-2006-03-19 (Development)
- NEP-SEA-2006-04-11 (South East Asia)
- NEP-TRA-2006-04-06 (Transition Economics)
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