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Endogenous Productivity and Development Accounting

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Author Info

  • Roc Armenter
  • Amartya Lahiri

    ()
    (Economics University of British Columbia)

Abstract

We model an environment in which different vintages of capital with their different productivities coexist. A reduction in the cost of investment induces investment in new capital which raises both measured capital and measured productivity simultaneously. We calibrate this model to cross-country data on the price of investment goods and compare the resultant world distribution of per capita income with the actual distribution in the data. We find that the model does fairly well in quantitatively accounting for the observed dispersion in world income. In particular, the model generates 35-fold income gaps and 6-fold productivity differences between the richest and poorest countries in our sample

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 268.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:268

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Keywords: Development; Productivity; Cross-country income;

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References

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  11. Chang-Tai Hsieh & Peter J. Klenow, 2007. "Relative Prices and Relative Prosperity," American Economic Review, American Economic Association, vol. 97(3), pages 562-585, June.
  12. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
  13. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
  14. Young, Alwyn, 1995. "The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 641-80, August.
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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.
  2. Chang-Tai Hsieh & Peter J. Klenow, 2010. "Development Accounting," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(1), pages 207-23, January.
  3. Charles I. Jones, 2011. "Intermediate Goods and Weak Links in the Theory of Economic Development," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(2), pages 1-28, April.

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