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Nonlinearities in Capital–Skill Complementarity

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  • Chris Papageorgiou
  • Viera Chmelarova

Abstract

This paper uses a novel dataset to test the capital–skill complementarity hypothesis in a cross-section of countries. It is shown that for the full sample there exists evidence in favor of the hypothesis. When we arbitrarily split the full sample into OECD and non-OECD countries, we find no evidence in favor of the hypothesis for the OECD subsample, but strong evidence for the non-OECD subsample. When we use Hansen’s [Econometrica 68 (2000) P. 576] endogenous threshold methodology we find that initial literacy rates and initial per capita output are threshold variables that can cluster countries into three distinct regimes that obey different statistical models. In particular, the regime with moderate initial per capita income but low initial education exhibits substantially higher capital–skill complementarity than the regime with low income and low education and the regime with high education. This cross-country nonlinearity in capital–skill complementarity is consistent with the time-series nonlinearity found by Goldin and Katz [Quarterly Journal of Economics 113 (1998) 693] using U.S. manufacturing data, and promotes the view that the phenomenon maybe a transitory one. Copyright Springer Science+Business Media, Inc. 2005

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Bibliographic Info

Article provided by Springer in its journal Journal of Economic Growth.

Volume (Year): 10 (2005)
Issue (Month): 1 (01)
Pages: 55-86

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Handle: RePEc:kap:jecgro:v:10:y:2005:i:1:p:55-86

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Web page: http://www.springerlink.com/link.asp?id=102931

Related research

Keywords: capital–skill complementarity; nonlinearities; parameter heterogeneity; regimes;

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References

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Citations

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Cited by:
  1. Areendam Chanda & Beatrice Farkas, 2012. "Appropriate Technology, Human Capital and Development Accounting," Discussion Papers of DIW Berlin 1236, DIW Berlin, German Institute for Economic Research.
  2. Capolupo, Rosa, 2009. "The New Growth Theories and Their Empirics after Twenty Years," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 3(1), pages 1-72.
  3. K Blackburn & N Bose & M E Haque, 2003. "The Incidence and Persistence of Corruption in Economic Development," Centre for Growth and Business Cycle Research Discussion Paper Series 34, Economics, The Univeristy of Manchester.
  4. Manuel A. Hidalgo Pérez & Jesús Rodríguez López & José María O´Kean Alonso, 2008. "Labor Demand and Information Technologies: Evidence for Spain, 1980-2005," Working Papers 08.12, Universidad Pablo de Olavide, Department of Economics.
  5. Osipian, Ararat, 2008. "Economic Growth—Human Capital Nexus in Post-Soviet Ukraine, 1989-2009," MPRA Paper 7731, University Library of Munich, Germany.
  6. Oded Galor, 2007. "Multiple Growth Regimes-Insights from Unified Growth Theory," Working Papers 2007-8, Brown University, Department of Economics.
  7. Vito Pipitone & Luciano Seta, 2012. "The Conditional Convergence in TFP Levels. On the Relationship between TFP, Processes of Accumulation and Institutions," Working Papers - Economics wp2012_09.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
  8. Henderson, Daniel J., 2008. "A Nonparametric Examination of Capital-Skill Complementarity," IZA Discussion Papers 3865, Institute for the Study of Labor (IZA).
  9. K Blackburn & G F Forgues-Puccio, 2004. "Distribution and Development in a Model of Misgovernance," Centre for Growth and Business Cycle Research Discussion Paper Series 42, Economics, The Univeristy of Manchester.
  10. Markus Eberhardt & Francis Teal, 2011. "Econometrics For Grumblers: A New Look At The Literature On Cross‐Country Growth Empirics," Journal of Economic Surveys, Wiley Blackwell, vol. 25(1), pages 109-155, 02.
  11. Christian Jaag, 2005. "The Role of Endogenous Skill Choice in an Aging Economy," Public Economics 0505005, EconWPA.
  12. Osipian, Ararat, 2007. "Экономический Рост: Образование Как Фактор Производства
    [Economic Growth: Education as a Factor of Production]
    ," MPRA Paper 7593, University Library of Munich, Germany.
  13. Michael Stimmelmayr, 2009. "Wage Inequality in Germany: Disentangling Demand and Supply Effects," CESifo Working Paper Series 2802, CESifo Group Munich.

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