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Endogenous Productivity and Development Accounting

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  • 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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  2. Stephen L. Parente & Edward C. Prescott, 1997. "Monopoly rights: a barrier to riches," Staff Report 236, Federal Reserve Bank of Minneapolis.
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  6. 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, vol. 92(3), pages 527-548, June.
  7. 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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  10. Chang-Tai Hsieh & Peter J. Klenow, 2003. "Relative prices and relative prosperity," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
  11. Parente, Stephen L, 1995. "A Model of Technology Adoption and Growth," Economic Theory, Springer, vol. 6(3), pages 405-20, November.
  12. Acemoglu, Daron & Ventura, Jaume, 2001. "The World Income Distribution," CEPR Discussion Papers 2973, C.E.P.R. Discussion Papers.
  13. Pessoa, Samuel de Abreu & Rob, Rafael, 2002. "Vintage Capital, Distortions and Development," Economics Working Papers (Ensaios Economicos da EPGE) 447, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  14. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 1997. "The poverty of nations: a quantitative exploration," Staff Report 204, Federal Reserve Bank of Minneapolis.
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  17. Jones, Charles I., 1994. "Economic growth and the relative price of capital," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 359-382, December.
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Cited by:
  1. 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.
  2. 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.
  3. Chang-Tai Hsieh & Peter J. Klenow, 2010. "Development Accounting," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(1), pages 207-23, January.

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