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Complementarity and Transition to Modern Economic Growth

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Author Info

  • Hyeok Jeong
  • Yong Kim

Abstract

In 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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File URL: http://www.usc.edu/dept/LAS/economics/IEPR/Working%20Papers/IEPR_06.44_%5BJeong,Kim%5D.pdf
File Function: First version, 2006
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Bibliographic Info

Paper provided by Institute of Economic Policy Research (IEPR) in its series IEPR Working Papers with number 06.44.

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Length: 39 pages
Date of creation: Feb 2006
Date of revision:
Handle: RePEc:scp:wpaper:06-44

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Web page: http://www.usc.edu/dept/LAS/economics/IEPR/
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Keywords: Sector-Specific Complementarity; Modern Economic Growth; TFP and Inequality;

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Cited by:
  1. Boyan Jovanovic, 2009. "When should firms invest in old capital?," International Journal of Economic Theory, The International Society for Economic Theory, vol. 5(1), pages 107-123.
  2. Hyeok Jeong & Robert Townsend, 2007. "Sources of TFP growth: occupational choice and financial deepening," Economic Theory, Springer, vol. 32(1), pages 179-221, July.
  3. Xavier Raurich & Valeri Sorolla, 2014. "Growth, unemployment and wage inertia," UB Economics Working Papers 2014/309, Universitat de Barcelona, Facultat d'Economia i Empresa, UB Economics.
  4. Hyeok Jeong, 2005. "Assessment of Relationship between Growth and Inequality: Micro Evidence from Thailand," IEPR Working Papers 05.20, Institute of Economic Policy Research (IEPR).

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