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Complementarity and Transition to Modern Economic Growth

Hyeok Jeong () and Yong Kim

No 06.44, IEPR Working Papers from Institute of Economic Policy Research (IEPR)

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.

Keywords: Sector-Specific Complementarity; Modern Economic Growth; TFP and Inequality (search for similar items in EconPapers)
JEL-codes: O11 O47 J31 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2006-02
New Economics Papers: this item is included in nep-dev, nep-sea and nep-tra
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