We ask whether the three-sector neoclassical growth model can account for the large cross-country differences in the levels of per-capita income, in the stocks of physical and human capital, and in the relative prices of capital. We use a version in which one sector produces services, a second sector produces manufactured goods including capital goods, and a third sector produces human capital. We allow for cross-country differences in sectoral TFP and in taxes on the sectors' productions. We find that cross-country differences in sectoral TFP can account for the differences in the relative price of capital goods, in the capital-output ratios in international prices, and in the stocks of human capital. In contrast, differences in taxes are of much lesser importance
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Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number
786.
Length: Date of creation: 2004 Date of revision: Handle: RePEc:red:sed004:786
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