How important are dual economy effects for aggregate productivity?

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How important are dual economy effects for aggregate productivity?

Author Info

Vollrath, Dietrich

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Dietrich Vollrath

Abstract

This paper brings together development accounting techniques and the dual economy model to address the role that factor markets have in creating variation in aggregate total factor productivity (TFP). Development accounting research has shown that much of the variation in income across countries can be attributed to differences in TFP. The dual economy model suggests that aggregate productivity is depressed by having too many factors allocated to low productivity work in agriculture. Data show large differences in marginal products of similar factors within many developing countries, offering prima facie evidence of this misallocation. Using a simple two-sector decomposition of the economy, this article estimates the role of these misallocations in accounting for the cross-country income distribution. A key contribution is the ability to bring sector-specific data on human and physical capital stocks to the analysis. Variation across countries in the degree of misallocation is shown to account for 30-40% of the variation in income per capita, and up to 80% of the variation in aggregate TFP.

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Publisher Info
Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 88 (2009)
Issue (Month): 2 (March)
Pages: 325-334
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Handle: RePEc:eee:deveco:v:88:y:2009:i:2:p:325-334

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Cited by:
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Marla Ripoll & Juan Carlos Cordoba, 2006. "Agriculture and Aggregation," Working Papers 371, University of Pittsburgh, Department of Economics, revised Nov 2008. [Downloadable!]
Other versions:
- Córdoba, Juan Carlos & Ripoll, Marla, 2009. "Agriculture and aggregation," Economics Letters, Elsevier, vol. 105(1), pages 110-112, October. [Downloadable!] (restricted)
Dietz Vollrath, 2008. "The Dual Economy in Long-run Development," Working Papers 2008-03, Department of Economics, University of Houston. [Downloadable!]
Other versions:
- Vollrath, Dietrich, 2008. "The Dual Economy in Long-run Development," MPRA Paper 12293, University Library of Munich, Germany. [Downloadable!]
Aoki, Shuhei, 2008. "A Simple Accounting Framework for the Effect of Resource Misallocation on Aggregate Productivity," MPRA Paper 11511, University Library of Munich, Germany, revised 05 Jan 2009. [Downloadable!]
Clemens, Michael A. & Montenegro, Claudio E. & Pritchett, Lant, 2008. "The place premium : wage differences for identical workers across the US border," Policy Research Working Paper Series 4671, The World Bank. [Downloadable!]
Other versions:
- Michael Clemens & Claudio Montenegro & Lant Pritchett, 2008. "The Place Premium: Wage Differences for Identical Workers across the U.S. Border," Working Papers 148, Center for Global Development. [Downloadable!]
Sai Ding & John Knight, 2008. "Why has China Grown So Fast? The Role of Structural Change," Economics Series Working Papers 415, University of Oxford, Department of Economics. [Downloadable!]
Fumio Hayashi & Edward C. Prescott, 2006. "The Depressing Effect of Agricultural Institutions on the Prewar Japanese Economy," NBER Working Papers 12081, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Fumio Hayashi & Edward C. Prescott, 2008. "The Depressing Effect of Agricultural Institutions on the Prewar Japanese Economy," Journal of Political Economy, University of Chicago Press, vol. 116(4), pages 573-632, 08. [Downloadable!] (restricted)

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This page was last updated on 2009-11-7.

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