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.

Abstract 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. JEL Classification: C52, D31, O41

Abstract We use detailed income, balance sheet, and cash flow statements constructed for households in a long monthly panel in an emerging market economy, and some recent contributions in economic theory, to document and better understand the factors underlying success in achieving upward mobility in the distribution of net worth. Wealth inequality is decreasing over time, and many households work their way out of poverty and lower wealth over the seven year period. The accounts establish that, mechanically, this is largely due to savings rather than incoming gifts and remittances. In turn, the growth of net worth can be decomposed household by household into the savings rate and how productively that savings is used, the return on assets (ROA). The latter plays the larger role. ROA is, in turn, positively correlated with higher education of household members, younger age of the head, and with a higher debt/asset ratio and lower initial wealth, so it seems from cross-sections that the financial system is imperfectly channeling resources to productive and poor households. Household fixed effects account for the larger part of ROA, and this success is largely persistent, undercutting the story that successful entrepreneurs are those that simply get lucky. Persistence does vary across households, and in at least one province with much change and increasing opportunities, ROA changes as households move over time to higher-return occupations. But for those households with high and persistent ROA, the savings rate is higher, consistent with some micro founded macro models with imperfect credit markets. Indeed, high ROA households save by investing in their own enterprises and adopt consistent financial strategies for smoothing fluctuations. More generally savings levels and/or rates are correlated with TFP and household fixed effects.

In developing countries, income per capita 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 the dual economy, the effect of which enters into TFP in an aggregate production function. We measure the theory using nationally representative micro data from Thailand (1976-1996). The technology parameters are estimated using cross-sectional earnings equations 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.

This paper evaluates the diverse implications of models of growth and inequality for data by studying two benchmark models that have explicit micro underpinnings. Both models generate macro aspects of growth and inequality from the micro features of wealth-constrained self-selection. Using the Thai Socio-Economic Survey data, we estimate initial wealth distribution and key parameters that best fit the micro foundations of the models and observe whether the model economies at those estimates can explain the macro aspects of growth and inequality. Both models capture the main aspects of growth and inequality dynamics but overdo their built-in heterogeneity while missing other diversity in the data.

This paper investigates the presence of a network externality which might explain the per-sistence of low schooling achievements among internal migrants. We test empirically whether young migrantsschooling decisions are a¤ected by the presence of covillagers at destination, using data on life-time histories of migration and education choices from a rural region of Thailand. Di¤erent modelling approaches are used to account for the self-selection of young migrants, for potential endogeneity of the network size, and for unobserved heterogeneity in individual preferences. The size of the migrant network is found to negatively a¤ect the propensity of young migrants to pursue schooling while in the city. This …nding suggests that policies seeking to minimise strati…cation in enclaves might have a socially multiplied impact on schooling participation, and, ultimately, a¤ect the socio-economic mobility of the rural born.

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 TFP growth into the occupational-shift e¤ect, … nancial-deepening e¤ect, capital-heterogeneity e¤ect, and sectoral-Solow-residuals. Applying this method to Thailand, which experienced rapid growth with enormous structural changes between 1976 and 1996, we …nd that 73 percent of TFP growth is explained by occupational shifts and …nancial 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.

Growth and labour markets in developing countries∗

I am indebted to Robert Townsend, Steven Levitt and Michael Greenstone for their guidance and support.

This thesis consists of three essays at the intersection of banking, corporate finance and macroeconomics. Unifying the essays are two themes: firstlyafocusonhowfirms (Chapter 1 and Chapter 2) and individuals (Chapter 3) insure against, and react to, sources of macroeconomic risk; secondly the role of financial institutions in the transmission of macroeconomic shocks. Turningtospecifics, Chapter 1 is a theoretical and empirical examination of risk management behavior amongst small and medium sized firms, in particular firms ’ choices between fixed and adjustable rate loan contracts. (Although theory suggests small, privately held firms should have strong incentives to engage in risk management, such firms are rarely studied in empirical work.) I develop a simple agency model of risk management behavior, and then present several pieces of empirical evidence that suggest small US firms do use the banking system to help manage interest rate risk, based on microeconomic data on bank dependent US firms. Chapter 2 presents evidence that banking relationships are most valuable to firms during periods of tight credit, in the extreme during a ‘credit crunch’. Relationships alleviate delegated