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Endogenous productivity and development accounting

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  • Roc Armenter
  • Amartya Lahiri

Abstract

Cross-country data reveal that the per capita incomes of the richest countries exceed those of the poorest countries by a factor of thirty-five. We formalize a model with embodied technical change in which newer, more productive vintages of capital coexist with older, less productive vintages. A reduction in the cost of investment raises both the quantity and productivity of capital simultaneously. The model induces a simple relationship between the relative price of investment goods and per capita income. Using cross-country data on the prices of investment goods, we find that the model does fairly well in quantitatively accounting for the observed dispersion in world income. For our baseline parameterization, the model generates thirty-five-fold income gaps and six-fold productivity differences between the richest and poorest countries in our sample.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 258.

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Date of creation: 2006
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Handle: RePEc:fip:fednsr:258

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Keywords: Productivity ; Wealth ; Income ; Capital;

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  1. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
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  13. Samuel de Abreu Pess & Rafael Rob, 2002. "Vintage Capital, Distortions and Development," Penn CARESS Working Papers ee2dae6cb07096d09f83c7bca, Penn Economics Department.
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  16. Peter Klenow & Andrés Rodríguez-Clare, 1997. "The Neoclassical Revival in Growth Economics: Has It Gone Too Far?," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 73-114 National Bureau of Economic Research, Inc.
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Cited by:
  1. Charles I. Jones, 2008. "Intermediate Goods, Weak Links, and Superstars: A Theory of Economic Development," NBER Working Papers 13834, National Bureau of Economic Research, Inc.

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