Complementarity and Transition to Modern Economic Growth

67 Pages Posted: 18 Dec 2012

See all articles by Hyeok Jeong

Hyeok Jeong

KDI School of Public Policy and Management

Yong Kim

Yonsei University

Date Written: March 1, 2012

Abstract

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-specific 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. difference in productivity growth), by implementing a structural estimation on individual earnings equations. We verify the dual partition and sector-specific 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.

Keywords: experience-labor complementarity, structural transformation, transition

JEL Classification: O11, O47, J31

Suggested Citation

Jeong, Hyeok and Kim, Yong, Complementarity and Transition to Modern Economic Growth (March 1, 2012). KDI School of Pub Policy & Management Paper No. 12-10. Available at SSRN: https://ssrn.com/abstract=2189206 or http://dx.doi.org/10.2139/ssrn.2189206

Hyeok Jeong (Contact Author)

KDI School of Public Policy and Management ( email )

P.O. Box 184
Seoul, 130-868
Korea, Republic of (South Korea)
+82-2-880-2921 (Phone)
+82-2-879-1496 (Fax)

Yong Kim

Yonsei University ( email )

Seoul
Korea, Republic of (South Korea)

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