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Complementarity and Transition to Modern Economic Growth

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  • 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.

Suggested Citation

  • Hyeok Jeong & Yong Kim, 2006. "Complementarity and Transition to Modern Economic Growth," IEPR Working Papers 06.44, Institute of Economic Policy Research (IEPR).
    • Handle: RePEc:scp:wpaper:06-44
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    Citations

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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, March.
    2. Hyeok Jeong & Robert Townsend, 2007. "Sources of TFP growth: occupational choice and financial deepening," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 32(1), pages 179-221, July.
    3. Raurich, Xavier & Sorolla, Valeri, 2014. "Growth, unemployment and wage inertia," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 42-59.
    4. Jeong, Hyeok, 2008. "Assessment Of Relationship Between Growth And Inequality: Micro Evidence From Thailand," Macroeconomic Dynamics, Cambridge University Press, vol. 12(S2), pages 155-197, September.
    5. Hyeok Jeong & Yong Kim & Iourii Manovskii, 2015. "The Price of Experience," American Economic Review, American Economic Association, vol. 105(2), pages 784-815, February.
    6. Jeong,Hyeok, 2020. "Productivity Growth and Efficiency Dynamics of Korean Structural Transformation," Policy Research Working Paper Series 9285, The World Bank.

    More about this item

    Keywords

    Sector-Specific Complementarity; Modern Economic Growth; TFP and Inequality;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies 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

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