Complementarity and Transition to Modern Economic Growth

Complementarity and Transition to Modern Economic Growth
Jeong, Hyeok
experience-labor complementarity; structual transformation; transition dynamics; growth and inequality dynamics; modernization of Thailand
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KDI Working Paper Series;WP12-10
The Thai Socio-Economic Survey suggests that new labor market entrants increasingly enter activities with high and positive productivity growth (modern sector), but continue to enter activities with low productivity growth (traditional sector). Workers appear to stick to their initial choice of entry between these two sectors throughout their work careers. We postulate that the transition from the traditional to modern sector is gradual because sector-speci c work experience complements labor. We measure the technology parameters of each sector and the partition of the economy consistent with the identifying assumption of each sector (i.e. di¤erence in productivity growth), by implementing a structural estimation on individual earnings equations. We verify the dual partition and sector-speci c complementarity do indeed exist. We then build and simulate a model of sectoral choice which explains well the observed transition dynamics of workers across sectors at the estimated parameters, using the Thai micro data.
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