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A unified theory of the evolution of international income levels

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  • Stephen L. Parente
  • Edward C. Prescott

Abstract

This essay develops a theory of the evolution of international income levels. In particular, it augments the Hansen-Prescott theory of economic development with the Parente-Prescott theory of relative efficiencies and shows that the unified theory accounts for the evolution of international income levels over the last millennium. The essence of this unified theory is that a country starts to experience sustained increases in its living standard when production efficiency reaches a critical point. Countries reach this critical level of efficiency at different dates not because they have access to different stocks of knowledge, but rather because they differ in the amount of society-imposed constraints on the technology choices of their citizenry.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 333.

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Date of creation: 2004
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Handle: RePEc:fip:fedmsr:333

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Keywords: Income;

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  1. Hendricks, Lutz, 2003. "Taxation and the intergenerational transmission of human capital," Journal of Economic Dynamics and Control, Elsevier, vol. 27(9), pages 1639-1662, July.
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  9. Benjamin R. Bridgman & Igor D. Livshits & James C. MacGee, 2004. "For Sale: Barriers to Riches," University of Western Ontario, Economic Policy Research Institute Working Papers 20043, University of Western Ontario, Economic Policy Research Institute.
  10. Djankov, Simeon & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2001. "The Regulation of Entry," Working Paper Series rwp01-015, Harvard University, John F. Kennedy School of Government.
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  12. Tamura, R., 1991. "Fertility , Human Capital and the "Wealth of Nations"," Working Papers 91-17, University of Iowa, Department of Economics.
  13. L. Rachel Ngai, 2003. "Barriers and the Transition to Modern Growth," CEP Discussion Papers dp0561, Centre for Economic Performance, LSE.
  14. Thomas J. Holmes & James A. Schmitz, Jr., 1995. "Resistance to new technology and trade between areas," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-17.
  15. Alwyn Young, 2000. "The Razor'S Edge: Distortions And Incremental Reform In The People'S Republic Of China," The Quarterly Journal of Economics, MIT Press, vol. 115(4), pages 1091-1135, November.
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  19. SchmitzJr, James A., 2001. "Government production of investment goods and aggregate labor productivity," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 163-187, February.
  20. Thomas J. Holmes & James A. Schmitz, Jr., 1994. "Resistance to technology and trade between areas," Staff Report 184, Federal Reserve Bank of Minneapolis.
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  25. Dowrick, Steve & Spencer, Barbara J, 1994. "Union Attitudes to Labor-Saving Innovation: When Are Unions Luddites?," Journal of Labor Economics, University of Chicago Press, vol. 12(2), pages 316-44, April.
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  27. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers 2001-11, Department of Economics, Williams College.
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