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...

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...