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Nonlinearities in Capital–Skill Complementarity

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Author Info
Chris Papageorgiou
Viera Chmelarova

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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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File URL: http://hdl.handle.net/10.1007/s10887-005-1113-3
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Publisher 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

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

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Claudia Goldin & Lawrence F. Katz, 1998. "The Origins Of Technology-Skill Complementarity," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 693-732, August. [Downloadable!] (restricted)
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  2. Kalaitzidakis, P. & Mamuneas, T.P. & Savvides, A. & Stengos, T., 2000. "Measures of Human Capital and Nonlinearities in Economic Growth," Working Papers 2000-5, University of Guelph, Department of Economics.
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  3. Per Krusell & Lee E. Ohanian & Jose-Victor Rios-Rull & Giovanni L. Violante, 1997. "Capital-skill complementarity and inequality: a macroeconomic analysis," Staff Report 239, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  4. Stokey, Nancy L, 1996. " Free Trade, Factor Returns, and Factor Accumulation," Journal of Economic Growth, Springer, vol. 1(4), pages 421-47, December.
  5. Griliches, Zvi, 1969. "Capital-Skill Complementarity," The Review of Economics and Statistics, MIT Press, vol. 51(4), pages 465-68, November. [Downloadable!] (restricted)
  6. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Winford H. Masanjala & Chris Papageorgiou, 2004. "The Solow model with CES technology: nonlinearities and parameter heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(2), pages 171-201. [Downloadable!]
  8. Bruce E. Hansen, 2000. "Sample Splitting and Threshold Estimation," Econometrica, Econometric Society, vol. 68(3), pages 575-604, May.
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  9. Hansen, Bruce E, 1996. "Inference When a Nuisance Parameter Is Not Identified under the Null Hypothesis," Econometrica, Econometric Society, vol. 64(2), pages 413-30, March. [Downloadable!] (restricted)
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  10. Robert J. Barro & Jong-Wha Lee, 1993. "International Comparisons of Educational Attainment," NBER Working Papers 4349, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Caner, Mehmet & Hansen, Bruce E., 2004. "Instrumental Variable Estimation Of A Threshold Model," Econometric Theory, Cambridge University Press, vol. 20(05), pages 813-843, October. [Downloadable!]
  12. Berman, Eli & Bound, John & Griliches, Zvi, 1994. "Changes in the Demand for Skilled Labor within U.S. Manufacturing: Evidence from the Annual Survey of Manufactures," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 367-97, May. [Downloadable!] (restricted)
  13. Francesco Caselli & Wilbur John Coleman II, 2000. "The World Technology Frontier," NBER Working Papers 7904, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Durlauf, Steven N. & Kourtellos, Andros & Minkin, Artur, 2001. "The local Solow growth model," European Economic Review, Elsevier, vol. 45(4-6), pages 928-940, May. [Downloadable!] (restricted)
  15. Liu, Zhenjuan & Stengos, Thanasis, 1999. "Non-linearities in Cross-Country Growth Regressions: A Semiparametric Approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 527-38, Sept.-Oct. [Downloadable!]
  16. William A. Brock & Steven N.Durlauf, 2000. "Growth Economics and Reality," NBER Working Papers 8041, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  17. Chris Papageorgiou & John Duffy & Fidel Perez-Sebastian, . "Capital-Skill complementarity? Evidence from a Panel of Countries," Departmental Working Papers 2003-12, Department of Economics, Louisiana State University. [Downloadable!]
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  18. Mark Bils & Peter J. Klenow, 2000. "Does Schooling Cause Growth?," American Economic Review, American Economic Association, vol. 90(5), pages 1160-1183, December. [Downloadable!] (restricted)
  19. Psacharopoulos, George, 1993. "Returns to investment in education : a global update," Policy Research Working Paper Series 1067, The World Bank. [Downloadable!]
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  20. repec:att:wimass:199419r is not listed on IDEAS
  21. Eli Berman & John Bound & Stephen Machin, 1998. "Implications Of Skill-Biased Technological Change: International Evidence," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1245-1279, November. [Downloadable!] (restricted)
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  22. Fallon, P R & Layard, P R G, 1975. "Capital-Skill Complementarity, Income Distribution, and Output Accounting," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 279-301, April. [Downloadable!] (restricted)
  23. Bergstrom, Villy & Panas, Epaminondas E, 1992. "How Robust Is the Capital-Skill Complementarity Hypothesis?," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 540-46, August. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. 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. [Downloadable!]
  2. Christian Jaag, 2005. "The Role of Endogenous Skill Choice in an Aging Economy," Public Economics 0505005, EconWPA. [Downloadable!]
  3. Capolupo, Rosa, 2008. "The New Growth Theories and Their Empirics after Twenty Years," Economics Discussion Papers 2008-27, Kiel Institute for the World Economy. [Downloadable!]
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