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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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File URL: http://hdl.handle.net/10.1007/s10887-005-1113-3
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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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  1. Berman, E. & Bound, J. & Machin, S., 1997. "Implications of Skill-Biased Technological Change: International Evidence," Papers 25, Centre for Economic Performance & Institute of Economics.
  2. repec:att:wimass:9419 is not listed on IDEAS
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  4. 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.
  5. 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.
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  12. John Duffy & Chris Papageorgiou & Fidel Perez-Sebastian, 2004. "Capital-Skill Complementarity? Evidence from a Panel of Countries," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 327-344, February.
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  18. Stokey, Nancy L, 1996. " Free Trade, Factor Returns, and Factor Accumulation," Journal of Economic Growth, Springer, vol. 1(4), pages 421-47, December.
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  21. 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.
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Citations

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Cited by:
  1. 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.
  2. Daniel J. Henderson, 2009. "A Non-parametric Examination of Capital-Skill Complementarity," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(4), pages 519-538, 08.
  3. Markus Eberhardt & Francis Teal, 2009. "Econometrics for Grumblers: A New Look at the Literature on Cross-Country Growth Empirics," CSAE Working Paper Series 2009-07, Centre for the Study of African Economies, University of Oxford.
  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. Blackburn, Keith & Forgues-Puccio, Gonzalo F., 2005. "Distribution and Development in a Model of Misgovernance," Proceedings of the German Development Economics Conference, Kiel 2005 15, Verein für Socialpolitik, Research Committee Development Economics.
  6. Oded Galor, 2007. "Multiple Growth Regimes-Insights from Unified Growth Theory," Working Papers 2007-8, Brown University, Department of Economics.
  7. Christian Jaag, 2005. "The Role of Endogenous Skill Choice in an Aging Economy," Public Economics 0505005, EconWPA.
  8. Osipian, Ararat, 2008. "Economic Growth—Human Capital Nexus in Post-Soviet Ukraine, 1989-2009," MPRA Paper 7731, University Library of Munich, Germany.
  9. 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.
  10. Blackburn, Keith & Bose, Niloy & Emranul Haque, M., 2006. "The incidence and persistence of corruption in economic development," Journal of Economic Dynamics and Control, Elsevier, vol. 30(12), pages 2447-2467, December.
  11. Areendam Chanda & Beatrice Farkas, . "Appropriate Technology, Human Capital and Development Accounting," Departmental Working Papers 2012-03, Department of Economics, Louisiana State University.
  12. Michael Stimmelmayr, 2009. "Wage Inequality in Germany: Disentangling Demand and Supply Effects," CESifo Working Paper Series 2802, CESifo Group Munich.
  13. 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.

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