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Published 1. "Assessment of Relationship Between Growth and Inequality: Micro Evidence from Thailand," Macroeconomic Dynamics, V. 12, pp. 155-197, 2008. This paper shows that growth and income distribution dynamics are closely linked through occupation, financial intermediation, and education. We use the micro data from Thailand for 1976-1996. The compositional changes across these characteristics account for half of the Thai inequality increase and forty percent of the Thai growth and poverty reduction. Financial deepening and educational expansion contributed to increasing inequality while occupational transformation contributed to poverty alleviation. The changes in income gaps across the income-status groups, that is, divergence and then convergence, give rise to inverted-U inequality dynamics. These two growth-related components of inequality dynamics, composition and income-gap dynamics, explain virtually all the change in overall inequality, except its initial rise. Thus, inequality dynamics can be viewed as integral part of wider process of growth as Kuznets speculated. 2. "Growth and Inequality: Model Evaluation Based on an Estimation-Calibration Strategy," with Robert M. Townsend, Macroeconomic Dynamics, V. 12, pp. 231-284, 2008. This paper evaluates two well-known models of growth with inequality that have explicit micro underpinnings related to household choice. With incomplete markets or transactions costs, wealth can constrain investment in business and the choice of occupation and also constrain the timing of entry into the formal financial sector. Using the Thai Socio-Economic Survey, we estimate the distribution of wealth and the key parameters that best fit cross-sectional data on household choices and wealth. We then simulate the model economies for two decades at the estimated initial wealth distribution and analyze whether the model economies at those micro-fit parameter estimates can explain the observed macro and sectoral aspects of income growth and inequality change. Both models capture important features of Thai reality. Anomalies and comparisons across the two distinct models yield specific suggestions for improved research on the micro foundations of growth and inequality. 3. "Sources of TFP Growth: Occupational Choice and Financial Deepening," with Robert M. Townsend, Economic Theory, Volume 32, Number 1, pp. 179-221, 2007. This paper explains and measures the sources of TFP by developing a method of growth accounting based on an integrated use of transitional growth models and micro data. We decompose total factor productivity (TFP) growth into the occupational-shift effect, financial-deepening effect, capital-heterogeneity effect, and sectoral-Solow-residuals. Applying this method to Thailand, which experienced rapid growth with enormous structural changes between 1976 and 1996, we find that 73 percent of TFP growth is explained by occupational shifts and financial deepening, without presuming exogenous technical progress. Expansion of credit is a major part. We also show the role of endogenous interaction between factor price dynamics and the wealth distribution for TFP. Under Review by Journals 1. “The Price of Experience,” with Yong Kim and Iourii Manovskii, 2008, revise and resubmit. We propose and estimate a model in which changes in the demographic composition of the labor force may affect the returns to labor market experience. We consider workers as providing two distinct productive services – physical effort, or “labor,” and services of the skill accumulated with labor market experience, or “experience.” The key element in the model is the aggregate production function that allows for complementarity between the appropriately measured aggregate stocks of labor and experience. The parameters of the aggregate technology are identified by estimating individual earnings equations that consistently aggregate. Both time-series and cross-sectional data confirm strong experience-labor complementarity. We find that the observed demographic changes that drive the aggregate experience to labor ratio account nearly perfectly for the substantial changes in the experience premium over time.2. "Complementarity and Transition to Modern Economic Growth," with Yong Kim, 2008, revise and resubmit. In developing countries, aggregate labor productivity typically remains stagnant for long periods before taking-off. We study this as the outcome of a gradual transition of the workforce from traditional to modern sectors. While exogenous productivity growth is present in the modern sector only, transition to the modern sector is gradual because work experience is sector-specific and complements labor. This generates an S-shaped income growth for such a dual economy, the effect of which enters into TFP in aggregate production function. We measure the theory using nationally representative micro data from Thailand (1976-1996). The technology parameters are estimated using a cross-sectional earnings equation implied by the model. We find the model simulated at these estimates captures well the nonlinear dynamics of aggregate earnings growth and inequality in Thailand. A. Estimation Programs and Instructions B. Simulation Programs and Instructions 3. "S-shaped Transition and Catapult Effects," with Yong Kim, 2008, revise and resubmit. Among today's rich economies, per capita output levels had diverged before converging to the levels of the frontier economy. Many non-rich countries also appear to follow this pattern of growth. Since frontier economies have grown at stable rates, non-frontier economies display an S-shape transition path. Along this transition, there are "catapult effects": longer episodes of divergence are associated with faster subsequent rates of convergence to the frontier. We construct and quantitatively assess a model of S-shaped transition with catapult effects. Deviations in per capita output from frontier levels are endogenous, while conventional growth accounting would classify these as TFP differences. Simulation Programs and Instructions 4. "Firm Level Heterogeneity and the Aggregate Disconnect between Exchange Rates and Exports," with Robert Dekle and Heajin Ryoo, 2008. We reconcile the conflicting evidence between the aggregate and microeconomic data on the exchange rate elasticity of exports. The estimation of typical macroeconomic export equations provides us with insignificant estimates for this elasticity, while recent firm level evidence suggests significantly negative values. Using Japanese firm data, we estimate a monopolistic competition model of exporting firms, and show that the aggregate and microeconomic estimates of this elasticity agree each other and are significantly negative, when the firm level decisions are consistently aggregated and the implied control variables, particularly the firm-level productivity and export shares, are properly included.
Work in Progress 1. "Equilibrium Analysis of Aggregate Disconnect between Exchange Rates and Exports," with Robert Dekle and Nobuhiro Kiyotaki, 2009.
2.
"Demographic Contents
of Aggregate TFP Dynamics," 2008.
3.
"Dyadic Analysis on
the Determinants of Income Distribution: Access to Intermediation vs. Physical
and Human Wealth," with Christian Ahlin, 2009.
5. "Selection and Income Distribution Dynamics," with Donghoon Lee and H. Roger Moon, 2007. This paper studies the effects of selection on income distribution dynamics using a nationally representative Socio-economic Survey data from Thailand for the 1981-1996 period. We use a similar framework to that of the World Bank-IDB joint project of Microeconomics of Income Distribution Dynamics (MIDD), which decomposes inequality changes over time into a "price effect," "endowment effect," and "residual term effect" ignoring selection effects. We explicitly allow for selection and find that selection has substantial effects on income distribution dynamics not only quantitatively but also qualitatively, turning many diverging forces to converging ones. The effects are particularly large for profits distributions. We also evaluate the role of (i) access to banks and wealth, (ii) unpaid family workers, and (iii) Independence from Irrelevant Alternatives (IIA) assumption on selection effects. |