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Endogenous Productivity and Development Accounting

Author

Listed:
  • 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

Suggested Citation

  • Roc Armenter & Amartya Lahiri, 2006. "Endogenous Productivity and Development Accounting," 2006 Meeting Papers 268, Society for Economic Dynamics.
    • Handle: RePEc:red:sed006:268
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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. Guo, Jang-Ting & Izumi, Yutaro & Tsai, Yi-Chan, 2019. "Resource misallocation and aggregate productivity under progressive taxation," Journal of Macroeconomics, Elsevier, vol. 60(C), pages 123-137.
    4. Chang-Tai Hsieh & Peter J. Klenow, 2010. "Development Accounting," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(1), pages 207-223, January.

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    More about this item

    Keywords

    Development; Productivity; Cross-country income;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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