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Complementarity and Transition to Modern Economic Growth

  • Hyeok Jeong
  • Yong Kim

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
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File Function: First version, 2006
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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
Contact details of provider: Phone: (213) 740-3521
Fax: (213) 740-3522
Web page: http://www.usc.edu/dept/LAS/economics/IEPR/

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