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Comparing TFP Catching-up and Capital Deepening in US and European Growths: A Directional Distance Function Approach

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  • Jean-Philippe Boussemart

    ()
    (University of Lille 3, LEM-CNRS (UMR 8179), IESEG School of Management)

  • Hervé Leleu

    (LEM-CNRS (UMR 8179), IÉSEG School of Management)

Abstract

In Solow’s model the income convergence between countries arises from two main sources: a capital deepening effect resulting from the diminishing returns of the production technology and a technological transfer/diffusion effect related to Total Factor Productivity (TFP) differences. A large literature has been devoted to analyze these effects but most of the studies suffer from three weaknesses by defining the US as the a priori technological leader, by using a parametric functional form and by assuming constant returns to scale for the technology. Our paper offers an alternative approach based on a non-parametric programming framework and the estimation of directional distance functions. We explicitly separate country TFP differences into two components: a technology effect and a scale effect to study the catching-up process on each of them. We also analyze the role of the capital deepening effect by introducing a relevant measure of the structural efficiency which reveals inefficiencies due to changes in input-ratio differences. Our empirical work focuses on 15 European countries (EU) and the US over the period 1980-2004. We use time series procedures to test for convergence for individual countries or sub-sets of countries.

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Bibliographic Info

Paper provided by IESEG School of Management in its series Working Papers with number 2008-ECO-01.

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Length: 27 pages
Date of creation: Jan 2008
Date of revision:
Handle: RePEc:ies:wpaper:e200801

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Keywords: TFP Catching-up; Capital Deepening; Convergence; Directional Distance Function. Running title: Comparing TFP Catching-up and Capital Deepening;

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  2. Nahar, S. & Inder, B., 1998. "Testing Convergence in Economic Growth for OECD Countries," Monash Econometrics and Business Statistics Working Papers, Monash University, Department of Econometrics and Business Statistics 14/98, Monash University, Department of Econometrics and Business Statistics.
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  14. Subodh Kumar & R. Robert Russell, 2002. "Technological Change, Technological Catch-up, and Capital Deepening: Relative Contributions to Growth and Convergence," American Economic Review, American Economic Association, American Economic Association, vol. 92(3), pages 527-548, June.
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